How to Quickly Pay Off Your Credit Cards
In the realm of personal finance nothing creates as much fear and loathing as credit card debt. There is a very good reason for this. With interest rates north of 20% in many cases even a small credit card debt can become a major burden for years or even decades if not addressed properly. Do you want a simple formula for paying off your credit cards as rapidly as possible? This is what I did to get rid of $60k worth of debt in just 33 months.
Get Your Priorities Straight
The first thing you need to do is prioritize your payments. There are two ways to do this:
- Pay off the highest interest rate debts first
- Pay off the smallest debts first
Both methods have their benefits. Debt help specialists will tell you that from a financial standpoint paying off the highest rate debts first makes the most sense. However chances are if you are in credit card trouble to begin with you aren’t that strong financially. Your spending is likely more emotionally based. And that’s where paying off the smallest debts can come in handy. It is more emotionally charged because you get quick results and start to set up a positive feedback loop. It makes you feel good to pay off those debts and motivates you to continue and even escalate your efforts.
Personally I used a combination of the two. I started off by paying off the smallest debts to make my list of outstanding debts smaller and more manageable. When I started I had 12 credit cards, but most of them had balances under $1000. Those were easier to pay off and gave me a great morale boost. It also has the benefit of freeing up cash flow since even on a $400 outstanding balance you are looking at a $20 minimum payment. Once I weeded out the small debts I was able to use that free cash to pay down the larger (and higher interest) debts more rapidly.
It’s easy to get started. Simply sit down and make a list of all your outstanding debts. List who you owe, how much you owe and what the interest rate is. You can also list the minimum payment for each debt if that helps you plan for the future.
Get Focused on Paying Off the Debts
I don’t mean just
focused, I mean laser targeted focused. If you have $50k in outstanding debts don’t
focus on the whole $50k. Simply focus on the first debt you are going to be paying off.
If you are going the route of paying off the smallest debts first that might be just
$400. It’s much easier to think about paying off a $400 debt vs a $50k debt.
Now look at your budget. You are going to budget the minimum payment for all of your debts, except the one that you want to slay. That one should get ALL of your free cash. If that’s just $50 or $100 a month so be it, that’s what you will pay until that debt is gone. Then you move on to the next debt, with the small difference that you now have all the cash you were using for the first debt + whatever the minimum payment is for the second debt. So if you were paying $100 on the first debt and a $20 minimum payment to the second debt you will now have $120 per month to pay down the second debt. This is going to begin accelerating your debt repayment. It goes slow in the beginning, but if you have a lot of cards like I did it rapidly gains momentum.
Increase Your Debt Repayment
If you are like most Americans (and
Canadians) you probably pay for things that while convenient are not necessary. When you
get serious about paying off your debt those things need to go. Dining out – gone.
Expensive cell phone data plans – gone. Vacations – gone. Video games, new
clothing, magazine subscriptions, girls/guys night out, maybe even cable TV – all
gone.
I know it sounds extreme, but you are in an extreme mess. Cutting out those things and other conveniences can save you boatloads of money that can all go to get debt out of your life. Yes it will be painful to give some of these things up, but it doesn’t need to be forever. Anyway, do you really enjoy those nights out and vacations knowing that they are increasing your debts and causing you more pain? Swallow the bitter pill now and once you’ve gotten your debts out of the way you can reintroduce some of the things you miss the most. Chances are you won’t need to though because one side effect of your debt repayment is that you’ve gotten your spending under control as well.
A Strong Finish
With all of the improvements you’ve made to
your spending habits your last debts could be paid off as quickly as your first debts,
even if they are 10 times as large. Imagine paying off a $4000 credit card in 4 months
or less. That is the power of controlling your spending and focusing on your debt
repayment. And once that last debt is paid off you will be able to get a huge jump start
of emergency savings and retirement investing
with all that extra cash flow. Plus you can treat yourself once after you’ve paid off all the
debts. This is one time it is ok to say “I deserve it”.
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Excellent article. I agree 100% with all your points.
For myself I transferred all my debt to one lower interest line of credit. But then again, my credit was yet to be badly damaged so I had no trouble getting one when I applied.
And wow, 66k of debt in 33 months? That is insane! Congratulations!
If I would have had the option to transfer to a lower rate line of credit I would have done the same. You are still paying it down aggressively I assume?
Of course, most months $300-$400 over the minimum payment. I want it gone so I can start putting money aside to start investing.
That’s awesome!
When I first started, the payoff payments were meager, but they have grown to large size chunks now.
That makes me more excited as I get closer to debt freedom (minus house), which should happen in 5 months.
I like your hybrid payoff approach because it’s tailored to your specific situation.
That’s what happened with me as well. When I started I was lucky to pay and extra $40-50 on the first debt. By the end I was knocking it down by $1500-2000 at a shot. It really does work if you stick with it. Only 5 more months for you which isn’t long at all. It will be nice to see you drop the (with Debt) from your signature
I love the post! We’ve paid off $60,000 over the past 5 years. It’s taking forever…we still have $50k to go!
I definitely like the smallest payoff method as you get started. It’s nice to see victory and feel like you’re winning and that’s exactly what happens when you knock out a small debt.
Now all of our debts are $5k+ so it takes a little while to knock one of those out. Kind of bored with the whole thing now. haha.
Wow – that’s a lot of debt (and a lot of repayment…)! Way to go!
Yeah and it was the 2nd time. I’m a slow learner
Haha! It’s ok. You got it now…
Holy crap $110k total! That is what I would call a mountain of debt! Good to see you are paying it off quickly though. I’ll bet the last $50k goes more quickly than the first $60k did. I understand your boredom too, it can start to wear you down after a while.
Do you have a celebration in mind when the last debt is paid off? And more importantly do you have a new goal to work towards once the last debt is paid off?
A mountain of debt is correct – stupid student loans!
I won’t say we have something planned. Our hope is to go on a European vacation before we’re 30. This would also coincide with us getting out of debt…so hopefully that happens.
I would also say that we constantly have goals to work towards, even while paying down the debt. I believe you have to have balance, so we’ve been attacking our debt but we’ve also been doing other things: building savings, saving up to buy a car (separate savings), going on vacation, etc. Although, after the debt is gone our focus will be on retirement savings and rental properties.
The European vacation sounds cool, we would like to see France and Italy some day.
Your balanced plan is a good one. I have to imagine with that much debt you would burn out if you didn’t use some of it as blow money or for savings.
Thank you for your post! I feel so overwhelmed by our debt and your post lays out a good action plan with easy to follow steps. I am always looking at our total amount and get down because I feel there is no way in h#ll that we will ever be able to recover from this.
But you’ve paid off $60 grand (Congrats to you!) and @WorkSaveLive has paid off the same (Congrats to WorkSaveLive), so it is definitely possible.
I can see how paying off one debt at a time is rewarding but I get confused with paying off the highest interest rate card versus the smallest payment card, especially when the highest interest rate card wants $340 a month in interest payments alone.
I know how disheartening it can be to look at a huge number when starting to pay off your debts. It doesn’t matter too much which debts you choose to pay off first, just choose one and then attack it with all you’ve got. Focus on that one debt as if the others didn’t exist. As you begin to get momentum it will get easier and easier.
I agree with your strategies for paying off credit card debt at a far faster rate. But honestly, credit cards scare the crap out of me. So, many people get themselves into a great deal of trouble with them, and just can’t see their way out. However, your post clearly maps out some powerful methods for getting credit card debts under control, and eventually paying them off.
I really like your idea of combining the strategy of paying off the highest interest rate debts and the smallest debts. I was always puzzled about which choice made better sense.
I was always puzzled too, but found that I needed that psychological push you get when paying off the smallest debts first. Plus with over 12 credit cards it was just becoming too overwhelming to keep track of them all. Once the first few were gone it became much more manageable and was an easy transition to switch to the higher interest debts. Plus by that point I had much more on a monthly basis to throw at those higher interest (and higher debt) cards.
Great stuff, Steve. I, personally, would do well paying high interest first, but I’m a big fan of the snowball method for those who wouldn’t pay down the debts without positive reinforcement – nothing wrong with that. The important part is the result of getting out of debt.
Thanks Nick. Considering your will power I would expect you to go after the higher interest debts first. There can be positive reinforcement in that too, but it requires the willingness to accept delayed gratification. Since it is the lack of this willingness that got many people in trouble in the first place it is best to take it out of the picture.
By the way, amazing job w/ the debt reduction too. That’s a lot of money to get rid of. Great stuff!
It would be so nice to pay off 4K in foour months or less. But life gets in a way. And life is full of temptations.
I do agree with everything you said, but
sometimes it is really hard to stay focused all the time. Breaks can help. 
Oh those temptations…I know them well
Breaks are definitely a good way to refocus when you lose your sense of purpose.
I like the combination of strategies. Pay off the smallest balance(s) first to get the number cards with a debt on them to a manageable number, then start hitting the cards with the highest interest rate to save money.