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3 Tips for Eliminating Credit Card Debt

Healthy financial habits will have you sleeping like a baby

If you’ve ever woken up in the middle of the night panic-stricken about the amount of debt you have racked up, you’re not alone. Credit card debt is the second-most-common type of debt after mortgage debt (and I’m going to assume we all know that your house is not an asset and therefore your mortgage is not considered good debt, right?). In fact, the average American family owes $8,377 in credit card debt, according to personal finance site WalletHub, which analyzed credit card debt trends in 2016. That’s certainly enough to keep someone up at night.

As a reminder, there is good debt and bad debt. Good debt is debt you use to acquire assets. Bad debt keeps you trapped, pulling you back instead of moving you ahead. In most cases, credit card debt is bad debt. And that’s why you must get rid of it, because it’s serving no positive purpose in your life. Here are some suggestions for obliterating your credit card debt once and for all:

1. Pay off new credit card charges every month

Credit cards have their advantages so don’t cut them into pieces or put them in the freezer. Instead, use them as a convenience, as a record-keeping tool, and as a way to verify to other creditors your ability to be financially responsible.

From this day forward, if you so agree, do not accumulate additional credit card debt. If you charge an item to your credit card, then pay that amount off when the statement arrives. If you have credit card debt that is more than 30 days old, then pay off all newly acquired debt and put a plan in place to pay off the old credit card debt. Why?

Credit card interest is always compounding, and over time it quickly adds up. Let’s say you have $100 in debt and it accrues 20% interest every month. In your first month, you will be charged $20, which gets added to your original debt. The next month, you are again charged 20%, which now comes out to $24. So after only two months your debt has gone from $100 to $144. Yikes. That’s literally throwing money away and nobody can afford to do that.

2. Don’t charge the small stuff

It’s astounding how quickly all of our minor daily purchases add up—from your daily coffee fix to a magazine at a convenience store. And it’s becomes very easy to justify all those small purchase at the moment. Only $3 for a lip balm because I accidentally left mine at home? No problem! But at the end of the month, those purchases really do add up.

Using physical paper money creates tangible awareness of how much you’re dolling out each day. It might even cause you to reconsider some of those small purchases when you find yourself running out of cash too quickly. Starting today, try using cash for any purchases under $20 and see how your spending habits adapt.

3. Pay off existing credit card debt

Robert and I were in a great amount of bad debt years ago—around $400,000. It was incredibly stressful. Talk about sleepless nights! But we paid off all of our debt in less than 10 years, including credit cards, car loans and home mortgages.

For our credit cards, we came up with an extra $100 in income per month. How? By getting creative. We then applied that additional $100 to our monthly payment on only one of the credit cards and paid the minimum payment plus the extra money on that one credit card. While we were focused on that, we paid only the minimum amount due on all other credit cards.

Once the first card was paid off, we applied the total amount we were paying each month on that card to our next credit card. This mean we were paying the minimum amount due on the second card plus the total monthly payment we were paying on our first credit card.

Continue this process with all your credit cards—with each debt you pay off, apply the full amount you were paying on that debt to the minimum payment of your next debt. As you pay off each debt, the monthly amount you are paying on the next debt will escalate.

It is possibly to become debt-free—often within five-to- seven years—but you must make the decision to do so and start today.

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