We all know that the first step to tackle your debt is to find out how much money you owe. So if you haven’t created an inventory of your debt, start with that. How much credit card debt do you have?
According to Credit Cards.com, the credit card debt per card-carrying adult is $5,839.
SPOILER ALERT…. the 2nd step is DO NOT INCUR MORE DEBT! Cut up your credit cards, freeze them in a Tupperware container of water so you can’t easily access them, give them to a trusted relative or friend or close your account.
Let’s start getting rid of your debt! There are several popular methods for tackling your debt.
The debt snowball is my favorite because its easy to understand and you see results quickly. The idea is to start with your smallest debt and pay as much as you can against it, while paying the minimum on your other debts.
In the example below, start with the Nordstrom debt since it has the smallest balance. You’ll continue to pay the minimum on the Macy’s and Chase accounts.
It will take a little over 3 months to pay off the Nordstrom and Macy’s credit cards when paying the minimum amount. If you have any extra money left over in your budget, put it towards the Nordstrom account. Even $10 or $20 will make a big difference in the time it will take to pay off this debt.
Once the Nordstrom bill is paid off you will add the $38 minimum payment to the amount that you are paying to Macy’s.
Once you pay off Macy’s, then you can put the $28 you were paying to Macy’s and the $38 you were paying to Nordstrom all toward Chase. So your monthly payment to Chase is $101 ($35 minimum Chase payment + $28 Macy’s minimum payment + $38 Nordstrom payment). This method really let’s you make progress on your debts!
Here is a simplified example (no interest) of the debt snowball. Don’t forget that interest is still accruing on the unpaid balance on your credit card bills. So it will take longer to pay off.
Debt Snowball – By Interest Rate
Another version of the debt snowball is to tackle the debt with the highest interest rate first. In that case, we would tackle the Macy’s card first since it has the highest interest rate and then the Nordstrom card and last the Chase card. You would continue to pay the minimum payment on all cards, but put anything extra to the Macy’s card first.
You can do this in conjunction with the Debt Snowball. Basically, whenever you have extra money, send it to the credit card company. According to thebalance.com, ” Even If all you can find is an extra $2.74 per day to pay on your cards, that’s still a whopping $1,000 per year taken off your credit card debt balances.”
So look for extra money, skip the latte, sell some things that you aren’t using, pick up extra hours at work or start a side hustle. Put this extra money toward your debt.
You can tackle your debt! Just follow these simple guidelines:
- Inventory your debt.
- Do not incur any new debt.
- Begin using the snowball method to pay off your debt.
- Put any extra money toward your debt.
- Track your progress. Keep a tracker on your refrigerator and watch the balance go down.
You’ve got this. Let me know how it’s going!