Credit card debt can feel like drowning. I know. I’ve had balances of more than $25,000. I was in deep.
If you have credit card debt, you have plenty of company. Thirty-eight percent of U.S. households are carrying credit debt. The average balance is $6,885.
This level of debt can feel overwhelming. Will I ever be able to come up for air? A plan for taking control of your money and paying off that debt is just the life preserver you need.
In my last column (read it at http://bit.ly/2kdw3OT), I gave you a method for discovering why paying off your debt is important to you, for creating a budget and for using cash for all of your discretionary spending. This is the foundation for what comes next.
To eliminate your debt, facing reality is Step 1. From the smallest balance to the largest, make a list of your credit cards. For each, note the balance and minimum payment. Add up the total. Congratulations. You’ve completed the first and often most difficult step.
Now that you know how much you owe, I recommend that you plan to pay it off in 12 to 18 months. Divide the total of your credit card debt by the number of months you chose. For example, if you had a balance of $6,885 and wanted to pay it off in 12 months, you need to pay your minimum payments and $574 each month.
Instead of paying more than the minimum on all of your cards, focus on the smallest balance first. This will create intensity and momentum. Once you pay off the smallest balance, add the minimum payment from that card to the next one on your list. Stacking the minimum payments will accelerate your progress.
How do you come up with the extra $547 you’ll need each month? Here are three options:
Cut your spending: Revisit your budget to eliminate spending that is less important than the reason you want to be out of debt.Sell things you own: Use this money to pay off your cards. Don’t forget to consider selling things you owe debt on, too. This delivers the double benefit of paying off debt and freeing up that payment to attack your credit debt.Work extra hours: An additional 15 hours a week at $10 an hour would give you the money you need.If you want to get out of debt quickly, coming up with extra money will probably mean a combination of cutting spending, selling stuff and working more. If the amount of extra money you need each month seems overwhelming, extend the amount of time you have given yourself to become debt-free – try 24, 30 or even 36 months.
Establish a timeline that motivates you and doesn’t discourage you. Your success should build on itself. Each month, you should feel a growing momentum toward your goal.
Next time, we’ll address avoiding financial chaos and crisis.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.