You CAN Pay off those credit cards!

If you read yesterday's blog than you learned about the horrors of credit card debt. So why does it take so long to pay a credit card? Credit cards work on a type of interest that is revolving- it is compound interest that works against you. Let me explain. Let's say you have a credit card that you owe $5,000 on, and on this credit card you have an annual rate that is 12%. Credit card minimum payments are usually 1% per month so if you only make that 1% payment,  in12 months you paid 12%. So guess what ..you didn't actually pay 1 cent on the balance. That is how credit card debt works, on some of these cards you can pay forever and never actually pay it down. Actually, if you have a rate that is over 12% and are only making the minimum payments your balance is actually going UP every month!

Well now that I've scared you straight let me show you how to make it stop!!!! I know, it's a tough economy and you may not have the money to just pay them off- if you do that's great- do it! If you don't (like most people) that's okay, here are a few ways to dig yourself out of this hole. Keep in mind this is going to take some dedication and most importantly will power to STOP USING THE CREDIT CARDS!

A: The Snowball (Borrowed from Joseph Sangl's I Was Broke Now I'm Not)
1. List all of your Debts by Balance
2. Pay the minimum on all of your cards EXCEPT the smallest one
3. Pay as mush as you can on the smallest debt until it's paid off.
4. When the smallest debt is paid, take the payment you were making and add it to the next smallest debt. Don't be tempted to use that extra cash and buy a new debt.
5. Continue until DEBT FREE!

B: The Patience Method-  For those of you with not much extra money.
Basically in this method you shred those cards! (Don't cancel them- That will actually lower your credit score) Pay as much as you can every penny helps until they are paid off. They will eventually get paid off IF you stop using them!

C. Use your debts to pay your debts!
Look around- do you even remember what you bought with those cards to rack up those balances? A bike you don't use, furniture you've probably outgrown. Sell what you no longer need and use it to pay down those balances. Despite what you have seen all around you- it's ok to downsize! Why live miserably with a ton of things you don't need? Learn to live within your means! I've learned that if I can't afford it I probably didn't need it to begin with!

D: A Penny saved is a penny earned! 'Piggy-Bank'
Designate somewhere to empty your pocket (or wallet) every night. Take all of the cash you have on you or loose change and throw it in. You will not believe how quickly this adds up! I actually use this to pay for Christmas (when credit cards are MOST used) this past Christmas I had $321 in change! That is probably a balance on one of those pesky cards!

E. Bonuses/Unexpected cash, etc.
I know, I know, it so much more fun to take a trip with that tax return or to splurge on something you don't need with that bonus. You probably get more unexpected money than you realize. Remember once you pay off those cards you'll have more free cash every month! So spur on and don't sell your hard work short on a weekend in Vegas.

You can also call your credit card companies and try to negotiate the balances. Keep in mind this will hurt your credit. They also may not be willing to do this if you are current on your account.

Bottom line here: the sooner you decide to be debt free the sooner you will be. Make a choice to stop using those cards, and to pay them off as soon as possible! Make a chart and have fun crossing them off one by one. Decide to stop giving your hard earned money away! Whatever method(s) you chose- stick to it! Your wallet will thank you! :)