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Erase credit card debt in just a few years time

I’ve been trying to erase credit card debt from my records for about four years now. I’m almost done. I expect to be debt free by July of 2010. I won’t say exactly how much debt I had to start with but if you’re reading this you probably have some debt that you would like to erase yourself. It’s been a rough road with the economy in the mess that it’s been. There were times when I thought I’d sink myself right back into the hole I’d nearly dug myself out of. My job always seems to be in the balance and if it does go belly up then I will no doubt be relying on my credit card for a while longer.

Until that actually happens, I will continue to pay down my debt and look forward to being debt free in a few more months. I have to tell you that once I started paying off my cards and saw the balance get lower and lower, I actually looked forward to my monthly statements. How to go about erasing credit card debt isn’t a big secret. All it takes is a little bit of commitment and determination. I have some tips I want to share that helped me get my debt under control.

The first thing I did was write down all the debt that I had. It helps to see a number in front of you so you can get an idea of exactly where you stand. It really helps erasing credit card debt a lot easier when you know what you are working with. If you only know the approximate amount you owe then you will not likely follow through with your debt reducing goal. When you can see the number, you will be more likely to work harder for it. Once you see the number getting smaller you will appreciate seeing it even more.

Let’s use a somewhat negative example here and say you have $5000 worth of loans with bad credit on your name, so your interest rate will be set at a higher rate. Your interest rate will be high on this amount because your low credit score affects everything in your life negatively. So the bank gives you somewhere around a 24% APR and your minimum monthly balance is calculated at about 3.5%. So, every month you pay about $175 a month on your bill (5000 x 3.5%). That’s your minimum payment. That covers the interest and the principal. However, you are paying only a fraction of that to the actual principal because your interest is so high. Every bank varies on how they calculate percentages and daily percentages so to make it simple let’s say you are actually paying about 50% of the premium every month while the rest goes to interest. So out of that $175 you are only actually paying down about $90 a month on your balance. If all you pay every month is the minimum payment, it will take you about nineteen years to pay off the balance (that’s because the minimum payment gets smaller the more you pay off). When all is said and done, you will have paid about $12,000 because of interest. Now, 23.99% may seem high but read your statement and you will see that it can be even higher if you miss a payment even once. I’ve had rates go up to 28%.

So, basically, at this stage you want to be able to make consecutive payments of $175/month to erase your credit card debt faster than the nineteen years making minimum payments. If you did this, you could effectively erase your debt in three years and seven months.

The next thing I did was to figure out how much money I made per month and take out all my expenses. Again, I wrote all this stuff down. If you are familiar with Excel, it is easier to work out how to erase credit card debt and budget your life by putting everything in a file that you can use for record keeping. If you aren’t computer savvy, a notebook works just as well.

Once you get your expenses down, look at how much extra you have to work with and see where, if possible, you can cut even more out of your budget. The more you can put toward erasing your debt the faster you can eliminate your debt. While paying the same amount every month is good enough to accelerate your payoff and cut down on the interest you will pay overall, if you can add more to the payoff the better. Shoot for about ten percent of whatever you have left over at the end of the month. Even adding $10 to your monthly payment will knock your time down three months using the example above. The bottom line is the more you can pay off consecutively each month the faster you will erase credit card debt from your life.