MoneyAccumulator.com

by Das Brain

Well, when I realized I had a problem with Credit Card debt, I thought to myself I better take care of this fast and now. It was the first step of admitting to myself that I had a credit card debt issue.

From my research there are 4 steps involved in attacking the paying down of Credit Card debt.
They are:

1. Admit you have a Credit Card debt problem and commit to fixing it.
2. Stop Credit Card debt spending
3. Make a spending plan
4. Pay down your Credit Card debt a month at a time, and pay them down one by one.

Let’s go through each step one by one.

1. Admit you have a Credit Card debt problem and commit to fixing it.
As I wrote above, I had already admitted to this, but it took a long while as I was in some form of denial. Thinking that the amount is not much, and that I can take my time paying it off.
Little did I realize that it would take a substantial payment every month to pay the amount off, and it will take over 2 years. Also I would have paid a lot of interest within that 2 years.

2. Stop Credit Card debt spending
I sat down and wrote down all the expenses that I used credit card for each month.
Then I checked off all the expenses that I will not use credit card for anymore, instead I will
pay cash for these expenses.

3. Make a spending plan
During step 2 of this process, I also listed all my monthly expenses and went through them one by one to determine which expenses I can cut back on, or cut out entirely.
For the expense items that I can cut back on, I will take the difference and put that towards paying off my Credit Card debt.
For example:
If I would normally spend $140 on grocery, I will trim that down to $125 and take the $15 and put that towards reducing the Credit Card debt.
For expense items like eating / dining out I would cut that out entirely.

4. Pay down your Credit Card debt a month at a time, and pay them down one by one.
The plan of attack that I have devised for paying down my Credit Card debt is to pay off the credit card with the highest interest rate and highest balance first. The reason, is the Credit Card debt with the highest interest rate and balance is the one you will be paying the highest monthly interest on. A good start is to take a look at your credit card statement and see what the dollar value of interest charged is for that month. The credit card with the highest dollar value monthly interest charged is the one you should concentrate on to pay off first. I have also implemented two payments a month, instead of the usual one credit card payment to accelerate the debt reduction.

Credit Card Monthly Interest Charge *Not actual figures, just example

Visa $124.56
Mastercard $12.78
Amex $56.98

In the example above, the obvious choice would be pay off the Visa Credit Card debt first, because you don’t want to continue paying $124.56 a month in interest. You would want to keep paying that Visa Credit Card debt down to reduce that monthly interest and continue paying the just above the minimum for your other credit cards.
Then the next credit card you would apply the same strategy to would be the Amex, and finally the Mastercard.

Since starting this Credit Card debt reduction plan last month, I have already paid off 5.3% of the first credit card I am working on. At this rate, I takes 19 months to pay off the whole balance, but since I already paid one month, it will take now take me another 18 months (1.5 years). It’s going to be a long 18 months, but step by step it will be paid off.

Wish me luck…the “Debt to Wealth” journey has begun.

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This entry was posted on Thursday, January 18th, 2007 at 11:26 am and is filed under Debt Management. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.