A combination of bad choices, unemployment and having children left me with high credit card balances. My two main credit cards had balances totaling a staggering $20,000. This amount was so high I ignored it for a long time. Reviewing my finances recently, the balances hit me. Paying this down this enormous debt needed to become a priority. Reducing this financial burden will not only give me extra room in my budget and help increase my credit score. I spent days researching how best to tackle these bills. Before long, I had a plan and implemented it.
First, I called up my high interest card and negotiated a lower rate. A simple phone call that took 15 minutes saved me 10 percent interest. This reduced the amount of interest accruing each month. The instant savings helped my payments make a bigger dent every month.
Based on my research, I also needed to change the way payments were made every month. Normally, I paid the minimum balance or just a couple dollars more once a month when the bill was due for each of my cards. In order to see real changes, I needed to work smarter. I continued to pay the minimum payment on my higher balance, low interest card and focused on paying extra on my lower balance but higher interest card. For my low interest, high balance card, I would pay the minimum payment of $300. The lower balance, higher interest card I paid the minimum payment of $150, plus $100 from my household budget.
For each card, I began to make at least two payments a month. The low interest rate card received half of the minimum balance twice a month. The higher interest card was sent half, plus as much extra as I could spare twice a month. By paying twice a month I was able to reduce the amount of late payments drastically and reduced the amount of interest accumulating each month. As the balance decreased, the minimum payments decreased. Instead of adjusting my payments down, I continued to try to make that original minimum payment or more. The balance started going down faster and faster.
The last step in paying off my debt was finding a flexible second income that could bring in extra money. Half of the money earned in this second job would go towards credit card payments, while the other half was placed in a spending fund. Any time I was tempted to buy something extra using the credit card, that fund was there instead or the purchase would be delayed until the money was in hand. Fifty dollars a week was sent to the credit card company and placed in the fund. That gave me a $200 extra credit card payment plus $200 in extra spending money. This brought $300 extra dollars of payment each month.
After six months of sticking to this plan, my credit card balances have been reduced. I have been able to reduce the high interest rate card by 35%. At the current rate of payment, it should only take me about 4-6 more months to have it paid off completely. At that point I will apply 100% of what I was paying to the first card to the balance of the second every month. That balance should drop quickly.
I made more progress on paying off my debt has occurred in six months than I ever dreamed. I cannot wait to have the burdensome debt out of my life and enjoy the extra money at my disposal!
More From This Contributor:
Envelope Budgeting – Taking Control of Your Family’s Financial Life
Credit Freeze: Protect Yourself From Identity Theft
Understanding your credit score