How to Escape Credit Card Debt

Blog featured image how to escape credit card debt

 

Let’s start by being completely honest. This isn’t going to be easy. It’s going to take hard work, on your part, and dedication to following a strategy.

 

Credit card debt is pretty much the worst kind of debt you can have. This is due to the exorbitant interest rates, and the ease of continuing to add to the burden.

 

A lady holding a credit card downing in debt

 

With that said, how can you actually go about addressing credit card debt?

 

First Step

 

Stop spending money you don’t have. If you are trying to pay down this debt, adding more to the card is only putting you in a worse and worse situation.

 

Second Step

 

Apply for a balance transfer credit card. What is a balance transfer credit card? Well it’s another credit card that will often charge you 0% interest or at least a much lower interest than your current card for a promotional period. This period is often six months to one year. The benefit of this is it allows you to focus on paying down the principal, without accruing additional interest.

Let’s illustrate how important this is. If you have a $10,000 credit card debt with a 20% interest rate and pay $200 per month it would take you 108 months to pay off. That’s nine years and one month. In the first year, even though you have paid $2,400 you still owe $9,561. This is because you are paying for the crazy interest that builds up month after month.

 

A table showing credit card details over time

 

A chart showing credit card details over time

 

If you can use a 0% balance transfer credit card for the first year, you would only have $7,600 remaining at the end of the first year. If you keep up the $200 per month and go back to paying 20% interest, you’ll have the card paid off in six years and one month. Just this one simple move can take three years off of your repayment period.

 

A table showing credit card details over time

 

A chart showing credit card details over time

 

Third Step

 

Try to apply for a line of credit or consolidation loan. Once you are partway through the promotional period of the balance transfer credit card, you need to apply for a better loan. You can try to get a loan through a bank, at let’s say 8% to pay off the credit card when your promotional rate expires. If you can’t get a consolidation loan, you can apply for a line of credit as well. Either one will work.

 

Going with our old example, pay $200 per month at 0% for first year, but now pay $200 per month at 8% for remaining years. Now you’ve got your payment timeline down to four years and 8 months.

 

A table showing credit card details over time

 

A chart showing credit card details over time

 

Fourth Step

 

After a year of paying down the consolidation loan it is time for step four. Renegotiate for a better rate on a new consolidation loan or line of credit. You see, when you first applied for the consolidation loan you had a ton of credit card debt and likely bad credit. Now after two years of meeting your deadlines on the balance transfer card and the consolidation loan, your credit has likely improved substantially. You now have a history of making payments, making good financial moves and you have a lower balance overall. This puts you in a better position to negotiate with your bank, or another bank for an even better interest rate.

 

You want to keep repeating step four until you have managed to pay down the loan in full. The closer you get, the better interest rates they will offer you.

 

Fifth Step

 

I’m going to call this step 5. Find ways to increase your payments. If you can go from $200 a month to even $225 per month it’s going to make a big difference. I’ll use the example of using a balance transfer card for a year, to a consolidation loan at 8%, but this time paying $225 per month. Now your down to four years and one month. If you can get up to $250 a month, your down to three years and eight months.

 

A table showing credit card details over time

 

A chart showing credit card details over time

 

Remember, this isn’t going to be easy. But if you take these simple steps you can reduce the amount of time it takes you to pay off your loan by well over half.

 

A chart comparing the timeline to pay down credit card debt using various strategies