I got a question from reader John that intrigued me in how I would answer, as well as tips that you, my readers, could provide:
Hey there Mike, I have been following your blog for a few months now. I was just reading the “Our remaining Debt” and saw that you paid it off in 3 years. I have about $18,000 in credit cards. What do you suggest to pay these off as quickly as possible?
Just a quick update before I get into answering the question. If you haven’t been following the site, we started with well over $100,000 in consumer debt (not counting mortgage), and paid it off in about 4 years. Sure, there were minimum payments for about 5 years prior to that, but they barely made a dent in the principal debt owed. In that time, we also acquired new debt in the form of a couple cars, but paid those off either with the money earned from selling existing cars or from savings, which was an amazing feeling to even having a “car fund” in the first place!
Oh, and I’ll have another announcement about our debt situation coming up soon, so keep an eye out for it.
Now, for John’s question. Without details on interest rates, how many cards the debt is spread across, your income, etc., I can only comment on how WE went about getting rid of our $20,000 in CC debt (really it was up to $25 a few times).
- Back in the day, like from 2001-2005, I was able to move our large balances around to 0% offer cards. Now, you can maybe still find the offers, but there’s no cap on the fee. Calculate the cost-benefit of paying the fee vs the interest on the card to see if it’s worthwhile to move the balance to a better interest rate. Also, keep in mind the duration (12 month offers are obviously much better than 6 month deals).
- Once I finally committed to focusing on paying off the cards, I opted to pay off the couple of cards with the lowest balance. Now, the wisest thing to do is to pay off the highest interest cards first, however, getting those few little wins really helped our motivation to tackle the big balances. But, if your smaller balances are still daunting, and/or the interest rate is extremely lower than the other cards, then start paying off the bigger balances first.
- Ok, now assuming you have been able to STOP SPENDING (hard to pay down debt when you keep accruing it), and that you have at least a few dollars in your budget to pay extra, then start sending the extra to just one card. Don’t try to tackle all your debt at once or you’ll feel like you’re spreading yourself too thin and you’ll probably give up.
- Lastly, try to get extra income. I was able to pay off most of our debt over 4 years thanks mostly to the advertising revenue on this site (which most of you probably don’t even notice). It also helped that I had a good job in IT, but remember that I live in DC with a sizable mortgage, car loans, and student loans. I did one loan at a time, sometimes not the correct one, but we got it all paid off and we’re just working on our 2 mortgages now (more on that soon).
John, feel free to comment with additional information or other questions to help me refine my answer more. And same goes with all you other readers. Share your tips if they differ from mine. Is it more than just focusing on one debt, stop overspending and try to get extra income? How else did you motivate yourself successfully?
I’m personally motivated by goals. If I know there’s an end in sight, I can accomplish the goal. Otherwise, I procrastinate and never do anything. Others are motivated in other ways, so share your thoughts!