Debt sucks. Trust me, I do.
There was a point when I found myself with more credit card debt than I as a personal finance expert would like to admit. My husband’s chronic illness relapsed, and suddenly we were facing mounting medical bills at the same time he had to stop working. I do everything I can to make ends meet, but all too often, I have to back out of my cards.
Just remembering this period makes my chest tight. The higher the balance I got, the less control I felt. The prospect of paying for it all is getting more and more overwhelming and terrifying. Part of me wants to defect to Canada, assume a new identity, and hope my debt never finds me.
I won’t pretend it was easy, but with determination, expert advice, and a healthy dose of belt-tightening, I’m finally debt free. So can you.
Fast Ways to Get Out of Credit Card Debt
If you’re struggling with a high credit card balance, getting out of debt should be your No. 1 priority. These steps will help you achieve it.
Step 1: Stop Using Your Credit Card
When you’re in a hole, the first thing to do is stop digging.
Don’t keep your cards in your wallet. Lock them in drawers to make them more difficult to access. If you’re worried you might still be tempted to use it, chop it up or freeze it (by freezing your credit or actually putting your card on ice).
Consider setting aside a certain amount of cash for all your monthly purchases. When your money runs out, that’s it. You can’t buy anything until next month.
If you have no choice but to charge something—say, your car broke down and you don’t have money for repairs—bill it on the card with the lowest interest rate and continue to do everything you can to pay off the balance.
It will be difficult sometimes, but finding creative ways to buy things for less (or nothing at all) will save you money in the Future. Adding to your debt while trying to pay it off is like saving a sinking canoe without plugging up the hole it takes in water.
Step 2: Review Your Financial Situation
Once you’ve stopped the bleeding, the next step is to identify what’s bothering you.
Have you experienced temporary setbacks such as job loss or emergency expenses? You’ll need to trim your spending or earn some extra money to get yourself back on track (or both).
Are you spending more than you take in each month? You have to find a way to stop.
Take a good look at your finances so you know exactly what you’re working on. It’s the only way you can fix things and prevent yourself from falling into debt again.
Step 3: Create a Budget
Budgets are a fundamental part of money management. You can never control your finances if you don’t know how much is coming in and going out each month.
If you don’t have one, it’s time to make a budget. Here’s how:
- List all your monthly income from all sources.
- List all your monthly expenses (bills, discretionary expenses, debt payments, etc.).
- Subtract expenses from income to see how much money you have left.
- Adjust your monthly spending to make sure you stay in the dark each month (or, ideally, have some money to spare).
- Track and review these numbers monthly and adjust as needed using Steps 4 and 5 below.
You can create a budget using a spreadsheet, with software or an app like Mint or You Need a Budget, or you can use an envelope system, where you put all of your cash for the month in category-specific envelopes. Choose whichever format is easiest for you.
If you already have a budget, the next two steps will help you figure out how to adapt it to serve you better.
Step 4: Cut Your Expenses
The more money you can spend on your debt, the quicker you will get rid of it. One way to free up extra cash is to reduce the amount you spend each month.
From small tweaks to big changes, there’s likely more room for tweaking your budget than you might think. You can free up even more money by, among other things:
- Lower your utility bills by doing things like closing drafty windows and turning off the lights in rooms you’re not using
- Cancel subscriptions you don’t need or use rarely, such as gym or cable TV memberships
- No more eating out
- Meal planning to maximize your spending
- Shopping sales and thrift stores
- Shop around for cheaper insurance plans
- Sell one of your cars
- Downsizing to a smaller home
Look at every expense you have and ask yourself what you can do to cut them (or if you even need to). You may be surprised by how much you can cut.
You’ll be able to pay down your debt faster by combining cost cutting with making extra money. Ways to do this include:
- Part time work, such as delivering food or raising pets
- Starting a side business, like selling crafts on Etsy
- Develop a passive income stream with affiliate marketing or selling stock photos
- Banking windfalls you receive, such as bonuses or tax refunds
Use the money from this income stream to top up your credit card balance. Every extra dollar gets you closer to your goal.
Step 6: Lower Your Interest Rate
If you do not pay your credit card balance in full each month, you are charged interest. The interest accrues each month, so you pay interest on your interest. Your balance keeps growing even if you don’t charge anything to your card.
You can pay off your debt faster by lowering your card’s interest rates with the following methods.
Take advantage of Balance Transfer Promotions
If you have a strong credit score, you may qualify for a new card with the 0% balance transfer promotion.
You pay no interest on the balance for a set period of time, usually between 12 and 21 months. After that, the interest rate resets the card’s default APR. If you pay off the balance before the introductory period ends, you can avoid interest charges altogether.
To use balance transfer successfully, check balance transfer fees — a one-time fee calculated based on the amount you transfer to your credit card. These fees can weigh on you, but your interest savings may make the transfer worth it.
Negotiate With Your Credit Card Company
Credit card requirements are not rigidly set. You can negotiate your interest rate by calling your credit card issuer’s customer service line.
Emphasize the positives, such as how long you’ve been a customer and whether you’ve made your payments on time to date. Describe the circumstances that relieved you. Be persistent, and be prepared to escalate the problem to a manager.
If your card company is unwilling to permanently lower your rates, it may be open to temporary reductions, which can give you some breathing room.
Whatever the publisher agrees to, get a copy of the agreement in writing.
Step 7: Choose a Payment Strategy
Being strategic with your credit card payments saves interest and helps you pay off balances more quickly.
The three main strategies for paying down debt are the debt avalanche method, the debt snowball method, and the debt snowflake method. We compare these three strategies here. Take a look at our analysis to decide which one is best for you.
8. Set up a Payment Plan
Your credit card company wants your money. They prefer to collect everything you owe them. But they’d rather work with you to get some of your money than you declare bankruptcy, in which case they get nothing.
A payment plan is an arrangement where your credit card company agrees to change your account terms so that it’s easier for you to pay them back. There are two ways you can negotiate a payment plan.
With Your Credit Card Company Directly
Contact your credit card issuer and tell them why you’re having trouble making a payment. Ask them what types of installment plans they can offer to make payments more manageable. They may agree to a lower monthly payment, a fixed rate, or 0% interest for a certain period.
The publisher may charge a monthly fee for the plan, but it can still save you money and help you pay off your debt faster in the long run.
Through a Credit Advisor
If you’re not comfortable negotiating with your card issuer on your own, a credit counselor can contact your creditor to set up a debt management plan. The counseling agency collects monthly payments for you and then pays your lender.
You will be charged a setup fee and monthly billing for this service. And your credit score may temporarily drop because many counseling agencies will ask you to stop making payments on your card while they work out your debt management plan.
However, credit counseling may be your best bet if you don’t want to deal with your own creditors or you prefer to have one monthly payment to track.
9. Consider Debt Settlement
If all else fails, there is debt settlement. In debt settlement, your creditor agrees to accept less money than you owe. Unlike payment plans, where you pay a set amount per month, debt settlement usually means a lump sum — you pay the agreed amount in one lump sum, and the issuer cancels any remaining debt.
Debt settlement can be a lengthy process that damages your credit score, so consider the other options above before you choose. If the choice is between debt settlement and bankruptcy, debt settlement is the better choice.
I contacted a credit counseling agency to help me pay off my debt. They negotiated with my creditors for monthly payments that could be made for me. It still took a lot of budget cuts and extra hours on my part, but finally paying off my mountain of debt is a great feeling that I won’t soon forget.
What isn’t a great feeling is finding yourself back in the hole shortly after achieving debt freedom. Do everything you can to avoid it.
Build an emergency fund so unexpected expenses don’t derail you. Keep reviewing and adjusting your budget. Keep working on that side job. Remember how stressed you must have felt when you were in debt, and vow to your Future never to get there again.