Eliminate Credit Card Debt – FAST!

Credit cards have their advantages. When used as a payment method, they are convenient, secure, and enable you to track transactions easily. However, due to their high-interest rates, they can be disastrous when used as a means of financing. Credit cards, like most other revolving credit, carry interest rates of up to 20+%. Revolving credit refers to a type of credit that replenishes up to a specified limit. Hence, paying them off can take a very long time if you only make the minimum payment. As consumers make payments, they have the flexibility to continue to use the replenished available balance. Because of the high-interest rate, this type of debt can hinder you from reaching your financial goals.

Here’s an example. Let’s say you have a credit card with a 20% rate, a balance of $6,164.00, and a minimum payment requirement of 3%. For the first month, your payment would equate to $185.00. Assuming you make no additional charges, but make the minimum payment each month, it will take you approximately 22 years to pay it off. You will pay a total of roughly $13,609.60 ($7,445.60 of which is interest). However, if you commit to paying $250.00 each month, your pay-off time reduces to 3 years, and your total payment reduces to $8,004.24 (only $1,840.24 in interest). Just by paying a bit more, you will reduce the amount of interest you pay by 75%, saving you $5,605.36.

According to a report by the Federal Reserve, as of March 31, 2020, Americans had over $800 billion in credit card balances. If you are one of those with this type of debt, it can feel overwhelming. However, all is not lost. You CAN completely pay off your credit cards, but it would entail making sacrifices.      

Here are six steps you can take now to pay off your credit card debt fast and enjoy financial freedom sooner.

1. ASSESS

You’ve heard it before; knowledge is power. This truth applies to many areas of your life, including your finances. To solve any problem, you must first understand the problem. Therefore, a significant first step to getting rid of your debt is to assess how you are spending your money.  Start by documenting your finances and identifying how much you spend on utilities, food, housing, clothing, transportation, medicals, entertainment, and other miscellaneous items. You may need to do this for a few months so that you can fully evaluate your expenditure. If you have never analyzed your finances before, you may be surprised to see how much money you spend on items you do not need. Several months ago, I went to a financial wellness training session, and the facilitator made us go through this process. Many of the attendees indicated how beneficial it was to track their finances in such detail. Sometimes, just seeing the raw numbers can be eye-opening and can motivate you towards making a change.

2. SACRIFICE

Let’s face it; there is no easy way to achieve any goal. You may have heard “to achieve the extraordinary, you have to give up the ordinary.” Sometimes you must make tough sacrifices to achieve the life of your dreams. You can forgo some things that you want today so that you can gain even better tomorrow. That’s the perspective you should have regarding your debt. Look through your finances and determine what you do not need, and be willing to give it up. It’s tough, but if you want to eliminate your credit card debt FAST, you must make tough decisions. There is no other way. Put all that extra money that you saved from giving up those items directly towards your credit card. Remember, the goal is to eliminate your credit card debt, fast!

3. SELL

Be ready to sell anything that you do not use or need. Some people don’t realize just how easy it is to sell used clothing and pretty much anything in their home. There are numerous ways to sell your items. You can host a garage sale. Of course, there are pros and cons to using this method. You would need to advertise, get signs, acquire permits, and do the work to set everything up on the day of sale. Garage sales take work, but all the proceeds go to you. You can also sell your items to local consignment stores in your area. Some stores assess your items and pay you a flat fee, while others pay you a percentage when the items sell. Another option is to sell your items online. One online method is to list and sell your clothes using an app such as Depop, Poshmark, and Mercari. While it is free to list your items, these apps charge a fee on items sold. You can also sell online using eBay, Craigslist, or Facebook Marketplace. Some sites, like eBay, charge fees while others, like Facebook Marketplace, has no fees. Do your research and select the best option for you. The method you use will depend on the type of item, the quality, and how involved you want to be in the process. This advice goes without saying, but make sure you use ALL funds to pay off your credit card debts – NOT to buy new stuff.

4. HUSTLE

I believe that people overlook having a side hustle when they think about reducing credit. By side hustle, I mean using your free time to make extra cash, not watch TV, play video games, or party. I know many people complain about not having time. However, we find time if what we need to do is important enough. Aside from those few who already have three jobs, most people can make some sacrifices and find the time. Remember that paying off your credit cards fast is an aggressive response to a problem. Hence, this recommended solution is an aggressive one. As I mentioned at the beginning of this post, you will have to make tough sacrifices to achieve financial freedom.

So, how can you make extra money that you can use to pay off your debt? Here is where you need to get creative. First, do some introspection. What are you good at, love to do, or are passionate about? For instance, do you love to write? Did you know you can get paid to write blogs, articles, journals, and magazines? Check out this article on how to make money writing. So, maybe you don’t like writing. How about skills like painting, mowing lawn, decorating? You can list your skills and prices in local Facebook groups or Facebook marketplace.  Check out this article with forty side hustle ideas. Remember, YOU have to put in the work to achieve your goals and financial freedom. No-one else can do that work for you. If you want it bad enough, you will do what it takes.

5. CAPITALIZE

Is your home larger than you need? You may not realize this, but your house is an opportunity to get extra cash. If you have extra space in your home and don’t want to downsize, you can capitalize on it. That’s right; you can use your home to make money. I am a member of one of Ohio’s largest real estate investors’ organization. There are several members there who used their homes to generate extra income.  You would be amazed at how easy it is to rent out a room, a basement, or even use your home as an Airbnb. Airbnb is a particularly great option if you live in a high-demand vacation spot. Unfortunately, due to the COVID-19 pandemic, vacation spots are in low demand. However,  there are other lucrative ways to generate income from your home. For instance, you can use the extra space or room in your home as a storage unit. Is there a need for storage space? Yes! When the economy is doing well, people spend more and need a place to store their extra stuff. But even during an economic downturn, there is demand. People tend to downsize, move in with family, or get a roommate. Hence, the need for storage units tends to be stable, even in a recession. Leasing your space can be as easy as using neighbor.com, a platform that matches people who have space with those who need it.

6. DIVIDE AND CONQUER

My final tip is to use the divide and conquer approach to eliminate your credit card debt fast. Separate your credit card accounts into three categories: high balance/high interest, low balance/high interest, and low balance/low interest. There are two main approaches you can take to paying off these balances. The most effective approach is to focus on the high-interest cards first. You can pay them directly, or you can transfer the balance to a low-interest debt such as a consolidation loan. A consolidation loan is a personal loan granted to pay off existing debt. The benefit of this approach is that you will end up paying less in interest. The money you saved from paying less interest will go towards paying down the balance owed, enabling you to eliminate your debt faster. The second approach is to focus on the low balance cards and pay those off first. This approach may be particularly appealing to individuals who find it rewarding to see quick progress. For some, the more cards they pay off, the more motivated they feel to continue.

Final Thoughts

Smart credit card use does not end with paying off your cards. After you have paid them off, stay disciplined. The last thing you want to do is rack that balance up again. You don’t need to close out your cards. You can keep them active, but always pay them off in full before or on the payment date. One of the most critical factors influencing your credit score is your credit utilization, which is the ratio of balance to your credit limit. Hence, having an active card with no balance can help increase your credit score.

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