After years in a vicious cycle of debt, author Jerry Coffey paid off $10,000 worth of credit card debt in two years through deliberate planning and careful money management. Now he blogs over at Repaid.org, (@RepaidOrg on Twitter.)
Getting out of debt is possible, not by skipping your daily trip to Starbucks, but through hard work and planning. Here is how I eliminated ten grand in credit card debt in just 27 months.
Stop adding to the debt
The first step to paying off your debt is to stop adding to it. The quickest way to do that is to stop any auto-drafts or electronic fund transfers (EFTs) that are connected to your credit card. An auto-draft is convenient, but, in order to pay off your debt, you will need to use cash as much as possible.
Once those auto-drafts are taken care of, you should hide your credit card from yourself. Childish…maybe, but it does help. (Jackie’s note: I’d recommend cutting it up instead, but this worked for Jerry.) I have a toolbox in the shed in my backyard. I put my card in a locked drawer in that toolbox. Why did that help? It takes about five minutes to put on my shoes, walk out to the shed, then open the toolbox. That extra time forced me to think about what I was doing. That self-talk time changed my mind about using my card on several different occasions.
Getting started is often hard to do. Not because you lack motivation, but because you do not know where to start. I was in the same boat. Finally, I realized that putting a budget together was the logical first step. Since I had always considered budget to be a cuss word, I was a little loathe to form one. Building a budget is not as simple as it sounds. It took me several months and many, many revisions to come up with one that I could live with and pay down my debt. Here are two steps that may make putting your budget together a little easier.
Go shopping! All you need is a large notebook, a pocket-sized notebook, and some sort of a writing utensil…pencils work better because you will find yourself erasing quite often. Once you get home, start writing down all of your recurring monthly expenses in the large notebook. This list needs to include rent/mortgage, fuel needs, credit card payments, groceries, utilities, entertainment, any subscriptions/memberships, etc. Don’t worry, the shock will pass. Also, keep in mind that many of those bills can be lowered, but we will get to that later. Keep paying all of these bills while you work through step two.
Now use that pocket-sized notebook. This notebook is going to become both your friend and personal nightmare for several months to come. You need to take it everywhere you go. It is awkward at first, but soon it will become a normal part of your life. What goes in this frenemy of yours? Everything you spend money on other than your monthly expenses. Literally, everything from a Slim Jim to a gas station cup of Joe. Trust me, you will be amazed at how much cash you blow through in a week. Most of which could be avoided by simply being aware of what you are doing.
Finding the money to pay off your debt
After you have spent at least three months tracking your expenses and revising your budget, you can start finding ways to attack that crushing credit card debt. The first question you have may be where is the cash to do this supposed to come from? After looking at my spending records I saw several glaring ways to raise extra cash. Little things like a gym membership that is rarely used and not renewing subscriptions for magazines I never read were quick easy ways to save. Next came the NFL Ticket. I used that, but I could get by watching the games that were available on cable. Next was the home phone that hadn’t rang in months. Oh yeah, eating out three or four nights a week and having the more than occasional alcoholic beverage.
Those are the areas where I was able to free up extra cash to pay down debt. You may have other areas. Something will probably jump out at you after you have tracked your expenses. If you only have a cell phone, do you have a larger data plan than you need or have a habit of buying apps that are cute, but otherwise useless? Are their premium movie channels on your cable package? Can you raise the deductibles on your auto insurance or cut it back to liability only? Keep in mind that if you raise the deductible, not to raise too high. Keep it at $500 tops. By changing my deductibles and cutting back on my excessive habits, I was able to save nearly $500 a month. Now you can take that “found” money and start paying off your credit card debt.
Go on the attack
Now you are in for a long fight. You didn’t accumulate all of that debt overnight, so paying it off will not be instantaneous either. I was cocky when I decided to pay off my debt. I assumed I could get rid of it in a single year. Once I did a little math, I realized that I would have to pay $800 a month to do that. Since the minimum payment was a struggle from time to time, that notion was quashed. I expanded my plan to 24 months. That was still a large payment, but I had found the money while tracking my cash outlay. Even after deciding on 24 months, I needed a clear plan to follow.
Paying off 10 grand in debt in just 24 months means sending some large payments each month, so I revised my plan again. I signed up for online bill pay and began sending weekly payments. I decided to pay the minimum monthly payment on time and keep the statement. The following week I paid all of the interest listed on the statement plus $50. The next two weeks I paid $50 each. It seemed like a reasonable plan and it was in writing, but the first months were hellish. I continually fought with myself over the worth of the plan. I cycled through depression, anger, and denial that I need to pay the debt off. I must have chucked the whole idea a hundred times. I was changing two old habits at once: using my credit card whenever I wanted and not caring about the long term consequences and spending money with a devil-may-care attitude.
It didn’t help much that the first few statements didn’t seem to show much of an impact from my pay down plan. Yeah, the minimum payments were down just a touch and I wasn’t on the verge of an overdraft fee, but that wasn’t enough. I lucked out during the third month. The minimum was down, the second week was easier since there was less interest to pay and there was a fifth week that month. I probably should have made another payment, but I let the old dog run a little and had a night out with my friends. Complete self-deprivation is unrealistic, so a little reward from time to time is necessary.
A fine pencil
If you work the math of this plan carefully, you will notice that I could have paid off my debt in less than 24 months. That would be putting too fine a pencil to it, though. You have to account for Murphy’s Law. Something is bound to happen that will set you back. Little things like a flat tire, dead battery, or the occasional time that you can’t stand being so frugal and spend a bit. These slips show that you are still human, so do not feel guilty or give up on your plan altogether. As you work your plan, you will want to start building a night out or shopping spree into your budget to prevent the urge to spend recklessly.
A 27 month plan worked for me, but your situation may be different. Even if you pay an extra $25 a month on your credit card, you will be able to pay less interest each year and pull yourself away from your credit limit. The keys are a realistic budget, controlled use of your credit cards, and having a plan to work.