Be Smart and Eliminate Credit Card Debt

Filed Under Credit Cards

Credit card debt will suck you dry! It can be one of the longest lasting debts you will ever have. And at today’s interest rates, it can also be the most expensive. If you don’t do something about it, it can literally cripple your ability to spend your money on the most meaningful items in life – like a house, a college education, or retirement.

When you carry a balance from month to month on a credit card, you increase the cost of everything you buy with your card (or cards). That’s because you add interest charges to everything – the large items and the small ones as well. So even the items that you supposedly bought “on sale” will end up costing you more money than if you paid cash. Even if it’s only a few pennies a month, it still adds up.

And if that wasn’t enough to logically win the argument, what about the sheer folly of paying for small items over time? I mean, do you really need to pay for that designer cup of coffee for the next six months? Well, that’s what you’re doing when you keep carrying that credit card balance month after month. It’s simply not good common sense.

But common sense isn’t exactly a term that goes with credit card usage anyway. We all tend to somehow see the money we spend with credit cards as being worth a little less than our actual cash. Several studies have shown that people tend to spend more when they use credit cards than when they use cash or prepaid debit cards. It’s almost as if the money isn’t real to us. Maybe that’s because we see our credit card purchases as something we don’t have to deal with right then and there; they’re something off in the distance, in the future. And that’s a big problem.

It’s a problem because we end up spending our future income on today’s items. Then, when the future arrives, we have less available money so we charge some more. All this does is keep the cycle spinning and spinning and keep us under constant pressure to make ends meet. We need to break the cycle and eliminate credit card debt.

So then, how do we legally eliminate credit card debt? Should we work to consolidate credit card debt into a single payment with some type of consolidation loan? Should we borrow from family and friends? How should it be done?

The first part of any credit card debt solution is to realize that credit card spending is symptomatic of larger spending or budget problems. So trying to consolidate credit card debt into a single payment (e.g. via a consolidation loan of some type) will only treat the symptom. The underlying problem will come back to haunt you at some point and you’ll just be in larger debt. You need to deal with the underlying problem; you need to eliminate the credit card.

You could go cold turkey and cut it in half and throw it away but you could also take it out of your wallet and stick in a drawer somewhere. In any case, you need to fundamentally rearrange how you spend your money – and you need to figure out how you’re going to do that with no credit card.

If you’ve read anything on this site you know that I suggest you replace your credit cards with a single reloadable prepaid debit card. Prepaid debit cards are great spending tools and can replace credit cards almost completely. They really can do almost everything their credit card cousins can do with the possible exception of pushing you deeper into debt (see Debit Cards FAQ.

I’m not a fan of bank debit cards because they’re tied to your accounts and thus they’re subject to bank fees. Banks have a tendency to add to or play with their fees in a way that never seems to benefit their customers. That’s why I think non-bank prepaid debits cards are a better answer. You can get a debit card in just about any retail store nowadays and they aren’t tied to your credit. You can have
bad credit or good credit and still get a reloadable card.

So after you’ve taken the big step of changing how you spend your money, you’ll need to have a budget of some kind to help. It doesn’t have to be elaborate. It could be as simple as a page of paper where you manually list all your expenses and credits monthly. It could also be an expensive piece of software that has all sorts of bells and whistles. Whatever it is, don’t get caught up in the look and feel of the information (that’s avoidance behavior); get caught up in how you’re going to make the numbers move in a direction that benefits you.

You’ll need to make some hard choices. If your credit card debt has been climbing, then it’s probably safe to say that your monthly budget hasn’t been balanced. It’s probably been in the red. In order to get it back into the black, you’ll have to cut down and/or eliminate certain expenses. This will not be easy but you can’t succeed without making and sticking with these choices! After making these changes, you’re in a better position for credit card debt elimination.

If you have multiple credit card balances, choose the one with the highest interest rate to start on. Figure out a way to increase your payment on that card even if it’s only a few dollars a month. Anything you can pay over the minimum payment will help. Implement that extra amount as soon as you can.

Also, call that credit card company’s customer service number. Tell them simply and honestly that you’re having trouble making your payments and ask them if they could lower your interest rate. The case you’re pleading is that you’re trying to honor all your commitments while avoiding defaulting on any of them and that you just need a little help. Be nice, be polite, but don’t be afraid to ask. If you get a “no,” try asking for a supervisor to speak with and remain polite. If you still get a “no,” take it with grace and poise.

If the phone call fails, write up a little letter. It doesn’t have to be long, a couple paragraphs will do. Simply restate the case you tried to make verbally over the phone. You need a little help; there’s no shame in that. Plus, remember that the credit card company will still turn a profit on your payments it just won’t be as large as before. So they can afford to give you a hand.

The letter approach can be effective because letters will usually go to a different part of the credit card organization. So you have a brand new chance to get the answer you want regardless of what happened on the phone. Plus there’s no way it will hurt you.

The reason you want to lower your interest rate is because by doing so you’ll also be lowering your minimum monthly payment. That means the increased payment I suggested above will have even more effect for your balance. You can literally save yourself months of repayments by lowering your rate.

Remember this is a long-distance race not a sprint. You’ll need to keep your nose to the grindstone each and every month, pouring as much as you can into that credit card payment. If you stick to it, you’ll not only eliminate that bill from your monthly budget, but you’ll eliminate that credit card debt from all of your future budgets. Then you can turn around and use that money for something else – maybe another long-term debt.

The good news is that at some point you’ll have succeeded in freeing yourself from the clutches of your credit card bills. You’ll also have created the proper spending habits so that you’ll be less likely to get into more debt down the road. That means more money to spend on the truly needful things in your life and more freedom. Keep the faith; you can eliminate credit card debt.