You’ve done a great job in recovery, prioritizing yourself to be a healthier human – and that’s commendable – it’s no easy task getting and staying sober. Now let’s talk about financial recovery.
Spending, like drinking and drugging, eating, gambling, and other addictions, is but a symptom. If you have a serious problem with shopping and spending, please seek help from a qualified individual or organization. While active in my addiction, spending was a side effect of drinking, and I racked up credit-card debt to some serious extremes.
I want to offer up a few strategies to help you manage your credit cards to get out and stay out of debt, for good. It just takes a few simple steps and then staying committed to the process. In the beginning, organized, but once you put in the initial effort, you’ll be amazed by how simple this process can be. it may take a little time to get organized, but once you put in the initial effort, you’ll be amazed by how simple this process can be.
First (and this is the most painful of all the steps!), you have to know where you stand. You can’t avoid paying your credit-card bills, and you need to know your starting point. Make a list. It should include the names of your credit cards, balances, minimum payments due, due dates, interest rates, and the customer-service number for each card. It could look something like the table below.
Next, call each card company to try to get lower interest rates. Arm yourself with a simple script and positive attitude – be pleasant with the agent who wants to help you! You could say something as simple as, “Hi. I’ve been a loyal cardholder for (X) years. I’m calling to see if you can reduce my interest rate. Any reduction would help.” If the agent says no, politely ask to speak with a supervisor and ask again. If you get a “yes,” great! Mission accomplished. If you get a “no,” ask why, and find out if there’s anything you can do so that the interest rate may be lowered in the future. Don’t be discouraged – you can’t control the outcome, you can only control your actions and reactions.
Next, determine how much money you can afford to pay toward credit cards each month. In the example above, the minimum payment due for all three is $235. The person with these debts has $300 budgeted for credit-card payments a month, so there’s an extra $65. You have at least three choices for how to apply that extra money:
1. The Snowball Method Apply the extra payment to the lowest balance first – in this case, the Mastercard. Pay the minimum amount due for Visa and Discover and pay the minimum balance plus the extra $65 to the Mastercard until the balance is paid in full – $100 total to this card a month until $0. Then, take that $100 and add it to the next lowest card’s payment, and so on. This method is good for folks who need milestones to keep them motivated.
2. The Avalanche Method Apply the extra payment to the card with the highest interest rate first – in this case, the Discover card. Pay the minimum balance due on the Visa and Mastercard, and pay the $125 minimum plus the extra $65 to the Discover card until it’s paid off. Then you’ll have $190 a month to apply to the next-highestrate card. This is best for folks who want to pay the least amount of interest overall.
3. The Emotional Baggage Method Apply the extra payment to whichever card gives you the most anxiety when you open the bill. Maybe it reminds of you of something or someone you’re ready to do away with. Maybe you’ve have that balance for years and it makes you mad to pay it every month. Whatever the reason, with this method, the credit card with the most emotional intensity attached to it goes first! Just like the other two methods, keep paying the minimum balance on the other two cards, and apply the extra $65 payment to the card you can’t live with anymore.
It’s that simple. Simple but not easy, I know. One thing to note and this is very important – while working toward zero credit-card debt, stop using the cards. Worstcase scenario, if you do have to use credit, choose one card and use only that one. There are great resources that I like to use on www.vertex42.com. I have no affiliation with that site except that using its debt-reduction calculator helped me get out of debt quickly and painlessly. See you next time when we talk about increasing savings and the best places to save your money.