The average American household that carries a credit card balance has over $9.000 in credit card debt. That means that the entire balance is not being paid off each month and that there is accruing interest at upwards of 18%. If you make only the minimum payment it will take you more than a decade to pay it all off.
When I got out of college, I was one of those people. The one with a credit card balance that I could not pay in full. I needed a full time job. I had student loans, which I had to start paying back in a few months from graduation, and I needed to outfit an apartment to move into and a few suits to interview in. Before I knew it, I was carrying over an $8,000 credit card balance.
Now by this time I did have a full time job. But it was entry level and paying almost nothing. With my student loan payment breathing down my neck, it was not hard to rack up credit card debt. It was on normal, things like groceries, gas, and a professional wardrobe.
I was making more than my minimum payment, so I should have been OK right? Not even close!! Like I said, when all was said and done, in about 9 months time, I owed just over $8,000 in credit card debt on 5 different credit / store cards.
I was in total SHOCK. How did I rack up so much so quickly?? I was not being frivolous or spending on non necessities. But I was spending MORE than I was making – between the time of graduation and my first paycheck. That time frame was about 6 months.
How I Paid Off Over $8,000 in Credit Card Debt in 18 Months
So, what did I do to get out from under this massive amount of credit card debt? Well, I did three distinct things.
First – I rolled my entire outstanding credit card debt into a balance transfer. More on this later.
Second – I sat down at my kitchen table and created a budget. I included my balance transfer in this plan and made sure it was within my means. This is the key to staying out of debt!
Third – I found ways to be more frugal and added a side hustle. Together with a budget this is the perfect combination to get yourself out of debt.
Learning to Budget
If you read those steps and panicked, don’t. Your first budget is not hard to start. I can help you do that. Check out my post on
Budgeting for Beginners. That is a very important step in this process.
But before you start that take a look at your debt pay down options. Once you have a pay off plan in place for the credit card debt (or other debt you would like to pay off). Then you can sit down and work on your budget and include it in your budget!
The point is not to get overwhelmed and just decide it is too hard. Take it one step at a time and you will get there. If I can do it you can too.
Side Hustles for Extra Income
Adding extra sources of income was another great way that I paid it down to $0 so quickly. This was my funding source. That is necessary if your costs outweigh your expenses. In my case between my student loan payments, living expenses, and credit card debt, I did not make enough on my fixed salary to cove them all.
So, I found a way to make extra dough. One of my favorite ways to do this is to sell items in my home. Find out what to
sell to make $100 this weekend. I kept doing this and it chipped away at my monthly payment. Do all that without setting up a garage sale!
Ideas to Live Frugally
One Easy Tip to Pay Off Credit Card Debt
Now all the steps that I just discussed are vital to getting out from under debt. But, the one thing that allowed me to crawl out of this large consumer debt was the balance transfer. Now hear me out. I know it sounds scary. Especially, if you have never used one before. I will explain exactly how I used this method to pay off my debt and why it worked for me.
But let me forewarn you. If you are not able to be strict with your spending and stick to the budget and funds you make. DO NOT use this method. You have to do two things really well. Make a level monthly payment. Not add fuel to the fire. When you feel more comfortable with your debt repayment, adding unnecessary spending to the mix will just put you right back where you are today.
Step 1: Figure out Your Credit Card Debt
Find your current balance for ALL your Credit and Store Cards. Write down each credit card or store card that you have. Now look up the current balance of each card and write it down. Make sure to include the due date as well, you do not want to pay late while you are waiting on this process to take place.
Now that you have all your balances in one place, total it. Try not to panic, if it is a high number. Remember, I have over $8,000 in credit card debt to pay off.
Step 2: Research Your Options
The next step is to do your research. If you have any credit cards currently open with a $0 balance, check to see if there are any deals with a balance transfer available. If you do not have any $0 balance credit cards, or none offer a current balance transfer deal, that is OK.
Then you will need to look for and apply for a new credit card that has an intro balance transfer offer. There are plenty of credit cards that offer this.
You need to note three things when reviewing:
- – length of offer, look for something with at least 18 to 24 months
- – fee associated with the offer, make sure that the fee is as low as possible. I look for a 2% to 3% fee, but will not go over 5%
- The amount of the balance transfer availability is over the amount you want to pay off, otherwise you may need to look at 2 cards and splitting up the credit card debt between them
Now that you have targeted the card(s) you will be using, time to talk about how I used this strategy to pay off my credit card debt.
Step 3: Put It All Together
Now that you know your number and where you will be transferring the funds, on to the easy part! Take the amount you owe and divide it by the number of months offered on your balance transfer. Here is what mine looked like.
- Debt Owed: $8,000
- Balance Transfer Months: 18
- Fee: 3%
- Amount to Pay Each Month: 8,000 + 240 (3% fee) / 18 = $457.78
If you look at that number and say, there is no way I can pay that extra per month, that is OK too. There is a second option, the only issue is that it will cost a bit more in the long run.
- Debt Owed: $8,000
- Balance Transfer Months: 18
- Fee: 3%
- Amount to Pay Each Month: 8,000 + 240 (3% fee) / 18 = $457.78 – only able to make 1/2 payments of $228.89
- Amount to be rolled over into a new balance transfer in month 18: $4,120
Take the new amount and apply the process all over again. It is OK to have to do it more than once to get rid of excess debt. Just remember that you need to keep making the payments and you will get there.
Why is This a Good Way to Pay Off Credit Card Debt?
I am not an advocate for balance transfers, except for in very extreme situations. If this case racking up debt while transitioning between college and a new job. It is not a good solution for regular overspending and will cost you in the long run if you use it as a crutch to live outside your means. But what I am an advocate for is getting you debt under control and this can be a good tool to use to get there.
The reason it is such a great tool is that paying a one or two time fee is way less expensive than what you would pay in interest while making the minimum payment. If the balance is as high as mine was, the minimum payment may not even cover the interest!
Let me show you in numbers:
- Debt Owed: $8,000
- Interest Rate: 18%
- Monthly Payment Made: $150 (more than the minimum payment and more than the interest owed)
- Interest Paid Over Life of Repayment: $8,215 (this assumes no further purchases are inured)
- Total Payments: 109
- Total Years to Repay: 9.1
Based on my situation, I would have paid MORE in interest than my balance owed if I made a small monthly payment. I would have never made it out of debt like that. Instead I transferred it and ended up paying it off in 18 months for $240!!!!! That is a game changer for anyone trying to get out of debt.
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