You may be thinking that you are okay because you can meet all the minimum payments on your credit cards and there are still groceries in the house. Well you may want to think twice because the cost of interest alone can add up to a fully funded retirement fund or college in some cases.
I can tell you a thing or two about credit card debt. Years ago, while going through a very hard divorce, my Mom’s sudden passing and raising three children on one income I started relying on my credit card to help pay living expenses. The debt quickly mounted to over $24,000 in total from several cards. I found myself drowning in debt with no end in sight. I could barely manage to keep enough food in the fridge to cover us until the next payday and was only able to make the minimum monthly payment each card. I had to come up with a plan. I had a written budget and tried to stick to it but debt kept getting in the way.
So I started taking a hard look at what and where I was spending. ATM fees and withdrawals alone were the killer. and the extra money I needed to snowball out of debt. I continued to make minimum payments on all but one card that I put the extra cash towards. When I realized the APR on the card’s ranged between 16 and 24.99% APR this made me feel like I was never going to get out from under this mess and the stress was getting worse each month before my written plan. When I finally figured out this plan didn’t work as long as I continued to charge on the cards I cut them all up! Yes, crazy to some but it works. I forced myself to go into the bank every two weeks and take out only what was needed eventually it became habit, ATM fees can be very expensive over time.
Once I figured out exactly how much interest I was going to pay for that month, year, life that was the ultimate motivator! So, as I was making more than minimum (with a plan) the card balance decreased and my minimum decreased based on the calculation until it hit the minimum payment allowed of about $25. I figured out when I stop spending on the card it worked much better than before. Cutting up those cards at first was heartfelt and the best thing I ever did, it felt good.
I had already saved $1,000 so this was a good feeling and came in handy when I needed tires. I immediately replenished that fund and went back to my debt snowballing. The interest each month exceeded $400 and I really could use that money! Then one day I finally paid off a card! I actually felt like I could breath for a second and applied that money plus the minimum to the next card. Needless to say many years of planning, monitoring and doing I finally paid off the last cent. It took me nearly five years. I didn’t know Dave Ramsey at the time and had I, WOW, I’m sure it would have been sooner.
A financial coach can go over your specific debt with you. Help you organize it and explain why maybe paying off the smaller amounts may be better than paying the higher interest or vise versa. It depends on your situation. The value add working with me is you can keep the creditors at bay, establish a written plan, pay off debt and succeed.
