Paying Off Credit Card Debt

Paying Off Credit Card Debt

It’s a fact of life, everything revolves around money.  Okay, it’s a fact of life TODAY.  One day when our economics change we’ll be forced to revert back to the barter system, where a pound of wheat will get your wagon wheel fixed.  Until then, cash is king.

Cash is king but most of live a cashless lifestyle.  It’s just the way the world is moving.  Most of us use our debit cards or credit cards during our daily lives.  Few of us write checks anymore and no one should be using money orders for routine transactions. But what would you do if the power goes out for a few days?…  A few weeks?…  A few months?…

I’d like to think that you’re prepared because you’ve been reading our blogs and articles.  You’ve stocked up on your food, water, medical and protection supplies.

But just in case your stockpile isn’t quite how you want it, here are a few financial tips to help you move in the right direction.  Your goal is to get out of debt and prepare for disasters.  Here is the basic plan:  Start an emergency fund (or two), payoff all credit cards while building your stockpile, and pay off all car loans while building your stockpile.

Once you have your emergency fund(s) in place (see the article on setting up an emergency fund), now is the time to pay off all your credit card debt.  According to creditcards.com, the national average on credit card debt per household is $15,956 at an interest rate of 12.78%.  WOW.  The monthly minimum payment is just over $300!  That’s just the minimum.  I rounded the numbers up to $16,000 and 13% for simpler calculation, but it would take you 377 months (31.4 years) to be rid of your debt just making the minimum payments. In that time, you will pay $16,854.19 in interest.  You need to pay more than the minimum.

Most experts, and I am not one of them, will tell you to pay of your credit cards before building your stockpile, this just isn’t feasible for most of us.  Here’s the compromise.  Pay the credit card minimum payment, and spend $25 each month building your stockpile.  Buy a few more cans of food, water, and medicines.  Any money you have left from the paycheck goes towards the credit cards.  No more going to the movies, no extra DVD purchases, no more wasteful spending until the credit card is paid off.  It’s going to take some serious “stick-to-it’veness” (I just made that up) to complete this goal.  It’s not going to be easy to pay off your debt especially if your credit card balance is anywhere near the national average, heck, it’s not going to be easy period.  But imagine what you could do with that credit card payment money, an extra $300 a month going towards your stockpile!

Here’s how to use the snowball method to pay off your credit card debt.  Make a list of all your credit card balances, the minimum payment, and the interest’s rates they carry.

  1. Bank 1 – Visa – $1800 -$39.00 – 14%
  2. Bank 2 – M/C – $3000 – $69.00 – 12%
  3. Bank 3 – Visa – $2500 – $58.00 – 16%

Take a long, hard look at all your credit cards. Pay particular attention to the one with the lowest interest rate. Have you reached the maximum limit on that card? If not, consider transferring a higher-interest bill to that one. Many credit cards permit this.  Read the fine print first!  It could be worth moving to 9.9% from 18% interest and could save you a lot of money. And the money saved in interest could then be applied toward the principal each month, thus reducing your outstanding debt balance even further.  Banks won’t let you transfer between cards unless there is a 12-month period since your last transfer.  If there is, the banks normal interest rate will be applied to all outstanding balances retroactively.

Once you have setup your cards with the lowest interest rate holding the largest balance, you need to continue to pay only the minimums on every card.  Take $25 and apply it to your stockpile, then send any extra money to the card with the lowest interest and largest balance and pay it off as quickly as possible.  When the balance on that card reaches zero, start the process over again on the next card with the same plan.

Lather, rinse, and repeat. This method of repayment is aptly called “snowballing.” As your debts decrease, the amount of money you have to attack them increases. Your payments snowball until all of your debt is eliminated.

Once all of your credit card debt is paid off, start the process on the car loans.  Add an extra $50 to your stockpile fund while paying off your car loans.

 

If you don’t have a plan, you don’t know where you’re going.  If you don’t know where you’re going, you’re lost. Plan your work.  Work the plan.

 

Prepare Strong.

Prepare.  Survive.  Live.

 

 

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