How to Eliminate your Credit Card Debt Quickly

Credit Card Debt Can Be Killed Quickly

First in a 3-part debt-reduction series

By Mark Barnes

Direct Lending Solutions Staff Writer

Credit card debt is destroying many Americans’ financial lives. Credit card sharks continue devouring us with outlandish interest rates of up to 24%. Credit card debt makes bankers wealthy, while making borrowers poor. The biggest problem consumers have, apart from paying these ridiculous interest rates, is continually making minimum monthly payments.

Consider this frightening example: you have a credit card with a balance of $5,000. The lender charges you 19% interest on the money, which is not at all uncommon in today’s economy. You are required to pay a monthly minimum of 2% of the balance. Making just this monthly minimum payment, it will take you a little less than 37 years to pay this off debt, and you’ll pay the bank the $5,000 you owe, plus a whopping $14,767 in additional interest payments. If this scenario sounds familiar, and you have massive credit card debt, you can eliminate it much more quickly than you realize.

The first step may be the toughest – you have to stop using the credit card. If you have two credit cards, cut up the one with the largest balance, and keep the other for emergencies only. Next, you must pay more than the minimum payment on one of the credit cards every month, until it’s paid off. Here’s how you do it.

To eliminate credit card debt quickly, you first have create what I call a Debt-Killing-Factor. Begin by evaluating your monthly income and debt, including money you spend on consumable items like gasoline, utilities, groceries and recreation. How much of what’s left can you afford to spend on your credit card debt? You must set a realistic goal for an amount to add to the minimum monthly payment.

If you can create more money to add to your Debt-Killing-Factor from saving some change or cutting out something recreational, this will help eliminate the credit card debt much faster. Most people, if disciplined with their spending, can take five to ten percent of their net income and put it toward a Debt-Killing-Factor (DKF).

Assume you decide you can round up an extra $50 monthly for your DKF. You have two credit cards, one with the aforementioned $5,000 balance and another with $2,000. You’ll tackle the latter, which has a minimum payment of $40, first.

If you pay the minimum on the $2,000 credit card, and it has an interest rate of 19%, it will take you almost 21 years to pay it off. By adding $50 to the minimum and paying $90 monthly, you’ll pay off this entire credit card debt in just 28 months, and you’ll save over $4,000 in additional interest payments.

Most credit cards have different interest rates and minimum payments. If you would like to calculate the time to repay a current credit card debt, based on what you owe and your minimum required payment and interest rate, use a credit card calculator to do this (see useful resource below).

Remember, though, the key to successfully eliminating credit card debt is to first set a goal for creating your own Debt-Killing-Factor. Settle on something that won’t make managing your money too difficult, and stick to applying it to your chosen debt each month. Next...

Other debt reduction pages: Part 2 | Debt Consolidation Loans | Debtors Anonymous | Sitemap

Helpful External Resource: http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp