You need to be on the path to educating yourself about how to get out of credit card debt. The more you know about credit cards generally the more options you will have to get them reduced. Use this knowledge to accelerate your debt reduction.
There are two general methods used to pay off debt which are known as the debt avalanche and the debt snowball methods.
Debt Avalanche
With this method, you make minimum payments on each card and apply any funds that you have leftover to the card with the highest interest rate
Debt Snowball
With this method, you pay off your smallest debt first and then move up to your next largest debt, without taking the interest rate into consideration.
Spreadsheet
Start off with a spreadsheet so that you can see a clear picture each month of where you are with your credit card debt. Review and update the spreadsheet a few times each month, especially just before you get paid.
| MAY 2020 | CARD BAL | IR | MIN PAY OF BAL | MIN PAYMENT FINANCE CHARGE | TOTAL MIN PAYMENT | FIXED PAYMENT (Cards 0% AFTER BT) | DIRECT DEBIT DATE | DATE BT* FIN | NOTES |
| Credit card 1 | 3000.00 | 30% | 30 | 75.00 | 105.00 | 120.00 | 05 May 2020 | 01 Oct 2020 | |
| Credit card 2 | 2000.00 | 30% | 20 | 50.00 | 70.00 | 80.00 | 10 May 2020 | 01 Dec 2020 | |
| Credit card 3 | 1000.00 | 25% | 10 | 25.00 | 45.00 | 245.00 | 15 May 2020 | 01 May 2020 | £200.00 Extra to lowest debt |
| TOTAL | 6000.00 | 60 | 150.00 | 220.00 | 445.00 | ||||
| BAL AFTER MIN PAYMENT | BAL AFTER FIXED PAYMENT | ||||||||
| 5780.00 | 5555.00 |
Spreadsheet Explained
May 2020
This column shows the 3 credit cards
Card Balance (Card Bal)
This column shows the outstanding debt on each card and the total credit card debt of £6000
Interest Rate (IR)
This column shows the interest on each card
Minimum Payment of Balance (Min Pay of Bal)
This column shows the portion of the minimum payment that goes to the reduction of the debt. The total of all the minimum payment is £60
Minimum Payment Finance Charge
This column shows the Interest that is charged on each card and the total of all the interest charges £150.00.
Total Minimum Payment
This is the addition of the DEBT REDUCTION & INTEREST CHARGE, which together gives the total minimum payment of all cards. The total of £220.00 (£150.00 of the £220.00 is interest) is the addition of all the minimum payments. After the £60 debt reduction is applied the total minimum payment is £5940.00. If all the cards where on 0% (after a balance transfer) the debt would be reduced by £220 to £5790.00.
Fixed payment (Cards 0% after balance transfer)
This column shows each card at 0% after a balance transfer. The minimum payment on each card has been fixed above the minimum card payment set by each credit card company. You can do this by contacting each credit card company and asking them to fix each card above the minimum payment at a set level. As shown in the spreadsheet for credit card 1, the minimum payment set by the credit card company is £105. You contact the card company and fix the minimum payment to £120.00. In the column titled ‘NOTES’ an additional £200 has also been applied to credit card 3 which has the lowest debt. You would continue to apply an extra £200 each month to credit card 3 until this debt is clear. Remember the more you can apply to a credit card debt the quicker it will be cleared. Once this debt is clear, you now apply the available £235.00 to credit card 2 (fixed payment on credit card 2 will now be £315) and so on until all 3 cards are clear.
Direct Debit Date
The date each direct debit payment is taken for each card.
Date Balance Transfer Finish (Date BT FIN)
This is the date that the balance transfer offer finishes for each card. This information is recorded in the spreadsheet so that you don’t miss the date the balance transfer offer ends for each card. Once a card comes to the end of its balance transfer period, the card reverts back to its normal interest rate.
Stop Using Credit Cards
The first thing you need to do is stop using your credit cards. Generally every time you use them you are creating more debt. The money you are spending doesn’t belong to you and will have to be paid back. Most people use credit cards like they are an extension of their salary, this gives you a false impression of how much money you really have.
Get all Cards To 0%
You need to get all your cards on 0% interest. Most people are not able to get out of credit card debt because they are servicing the interest on the debt and not really reducing the principle. Once all your cards are on 0% you can start to see significant reductions on your credit cards
Using Balance Transfer for Existing Cards
A balance transfer is when you move a credit card debt from one credit card company to another. You will be generally charged a fee which is normally 3% to 5% of the total balance being transferred. This fee normally has a minimum charge. Generally don’t spend on a card that has a balance transfer debt. Any purchases made on this card will incur instant interest. Verify this with your credit card company.
New Balance Transfer
Look to try and transfer your debt onto clear cards (cards with no balance) that give you an offer of 0% interest on transferred balances.
Generally, you need some breathing space in your budget to start to attack the credit card debt. £200 per month is a good figure to see some impact on your debt. Obviously the more you can apply to your debt the quicker you can reduce it. If you don’t have much flexibility in your budget, look to see what subscriptions (e.g. online TV streaming), etc… you can cancel to free up funds that you can apply towards your credit card debt.
My view
Here I’m just sharing how I have dealt with my personal credit card debt. It’s always good to do additional research so that you can gain information and develop more strategies to tackle your debt. You have the most to gain from clearing your cards, so put the time into learning the necessary skills.
Next Steps
Don’t use an existing card with a credit card debt on it
Balance transfer high Interest cards onto cards with 0%
Fix minimum payment on cards
Use a spreadsheet to track your credit card debt
How would it feel to clear all your credit card debt?
Great article! I learned something new today re fixing your minimum payment. I always overpay but at times I don’t, it would be nice to clear a bit more each month by setting the minimum rate to a higher amount.