By June, 2014, I accrued almost $7,000 in debt over two credit cards. I carried this debt from various shopping trips, a couple of vacation trips and an unfortunate motor vehicle accident I ended up paying out-of-pocket for. The following are the steps I’d taken to whittle down this debt, having successfully paid off my credit cards by December, 2014.
1. Committed to my goal.
The first step was committing myself to this goal. I wrote down my goal and deadline in my notebook and read this daily. This wasn’t the first time I’ve “set” this goal for myself; something else would always come up such as a nice bag I just had to have and before I knew it, there’s another $300 on my credit card. I RECOMMITTED to my goal this time (which was why I was successful in accomplishing it 🙂 ).
2. Enrolled ‘accountability’ buddies.
I shared this goal with two people – my partner and my best girlfriend. My partner would remind me if I really needed another new workout top or swing by Starbucks for ‘just one latte’ whenever I’m tempted to swipe my cards. Every time I saw my girlfriend, she’d ask how much I had left on my credit cards. They were both great support in following through with my goal. My integrity was on the line and there were two other people who knew it – I had to prove to them and to myself that I was really serious about becoming debt-free.
3. Sat down and crunched up the numbers.
I listed this task down under my “to-do” list however I kept putting it off because other things would always come up. I finally decided to actually book this event into my calendar and went to a coffee shop on my own to get it done. I figured out my monthly income and wrote down all my fixed expenses as well as miscellaneous expenses. From there, I was able to figure out the numbers for my next step.
Mint – If you do all your spending via credit card or debit card and you receive your income in a checking account, this is a great program to track where your money has gone!
I use this to keep track of all our accounts – checking, savings, credit cards, line of credits, even our retirement accounts and the value of our vehicles are tracked on Mint. I love having the app on my phone because it makes it easy for me to check on how our accounts are growing and catch if there has been any mistakes in our bank statements. Mint syncs into your account and downloads all transactions – but you can’t move money around in the program, which is great!
4. Created a budget.
I’ve heard this one before and read about it in many articles/books/etc. It makes good sense however I really struggled with it in the beginning.
I set a budget based on my expenses from previous months and altered it so that my budgets are WAY below my income per month. This was a bit of a painful process as I had to cut out things I liked – I decreased my coffee budget (goodbye Starbucks!) and cancelled my Next subscription to name a few sacrifices.
I built into my budget a CREDIT CARD PAYMENT too. I assigned $500 per month as my minimum monthly payment just for this goal. I hated seeing this category under my MINT app and it motivated me to work away at it even more!
You Need A Budget – This is a budgetting program that helps you “gain total control of your money”. Just like Mint, this program goes into your bank accounts to download your actual spending onto the program. You can sync it across multiple devices – so if you and your partner do your budgetting together, you can do so in real time via the mobile app.
YNAB gets better with age. The longer you use it, the more information it can provide you and the more useful it becomes. You can then tweak your budgets as needed or see which categories you may need to cut down on. You no longer have to wonder where your dollars went because YNAB will tell you!
5. Actually stuck to my budget!!
This is pretty self-explanatory and was the most difficult part of the process. I have had to turn down dinner dates, events, parties and shopping trips to the mall to prevent myself from overspending. It was tough to miss out on the fun times, however, I knew the reward will be sweet when I’ve achieved my goal. Besides, hanging out with friends and attending events will be much more enjoyable when I’m not fretting about whether my credit card will get approved for that dinner bill or worrying about where I’ll get the cash to pay for it (and the interest) later on.
6. Cash, cash, cash!
I didn’t get rid of my credit cards because they carried my good credit history with them but I did leave my cards at home and out-of-sight. Twice a month, I withdrew half of my spending money out of my bank account. I paid cash for everything and was mindful with making it last through those two weeks… some weeks were a nail biter but I survived by being creative (lattes made of instant coffee anyone?).
7. Lowered my interest fees.
I called my credit card company to negotiate my interest rate. Although I really liked my cash-back rewards MasterCard, it wasn’t conducive to my goal because the card required me to actually spend on it. I ended up converting my card to a low-interest MasterCard instead, effectively decreasing my interest rate from 19.99% annually to only 8.99%. That’s a difference of $107/month versus $48/month in interest fees!
I was able to do this with my first credit card however not my second credit card – they wouldn’t budge. It was still worth the attempt though!
Note: The second credit card company however did offer me an increase on my credit limit. I accepted it because it positively affected my debt utilization ratio (I will talk about this in another article)!
8. Snowballed my payments.
Along with my minimum monthly payments of $500, any money I had left over at the end of the month as well as any extra income was funnelled towards those credit cards. I picked up side jobs and overtime hours at my current job to create extra income too.
9. Rewarded myself along the process! (smartly!)
Even though I had my laser-focus on wiping off my credit card debt, I still managed to save a little of my income aside on things that I love such as Starbucks gift card, a new book or a new item of clothing (usually gym clothes!). These small rewards allowed me to work on my goal without getting tired or frustrated at it. I had to be smart about my rewards too however (I was tempted to buy a $500 camera as a “reward” but I quelled that urge!), otherwise I’ll undo the progress I’ve made so far.
There you have it! Last month (December, 2014), I paid $789.47 halfway through the month – effectively erasing my $7,000 credit debt!
I hope you find this useful. Financial goals can be fun if you make it that way so be creative.