Jon writes in:

I have a bunch of credit card debt spread across several different cards and I’m having a hard time getting started paying them off. You’ve offered a lot of little solutions for debt removal, but I need a plan I can execute to deal with these credit cards. How can I get rid of these debts?

Personal Finance 101I receive questions like Jon’s almost every week, usually involving a person who has realized that their credit card debt is completely out of control. They want to know what they can do to get out of the situation.

The most important thing to realize is that the best solution to credit card debt is a long-term one, not a “quick fix.” You’re going to need to make some alterations to your spending, because if you’re racking up that much credit card debt, you’re spending beyond your means.

Ten Step Plan For Credit Card Debt Relief

1. Hide Your Credit Cards
The first step is to hide your credit cards in a place where you could access them in an absolute emergency, but that they’d be very difficult to find. Put them in a little box way in the back up in the attic. Freeze them in a big chunk of ice. Hide them in the back of the cupboard at your mother’s house. Make sure it’s somewhere where you can’t easily access them.

Then, go to every online account where you use a credit card regularly and delete your credit card numbers there. Amazon. PayPal. World of Warcraft. All of them. Make sure that you’re not forgetting anything. If you absolutely must retain a service, use a debit card number instead of a credit card number.

Why do this? Your credit card balances need to go down, not up, and the biggest step in doing that is to break yourself of the habit of using them without a connection to the real money you’re spending. That means going back to using cash, checks, and debit cards – if you don’t actually have the money, you’re not spending it.

2. Figure Out What You Owe – And What The Interest Rates Are
The next step is to dig out the most recent statements for all of your credit card bills and determine exactly how much you owe and what the interest rates on each of the bills is. This information should be easily found on your most recent statement, but if you’re having difficulty finding the information, call up your credit card provider (the number on the back of the card) and get that information.

You should be making a list of all of these: credit card name/type, current balance, and interest rate. This way, later on, when you develop a plan, you can use this master list to figure out which credit card to pay first.

3. Request That The Companies Lower Your Rates
Now that you have all of your information at hand, go through them and try to get some of your rates reduced. For each card, call the phone number on the back and directly ask for a rate reduction. If you get a response that doesn’t give you what you want, ask to speak to a supervisor.

Some tactics:
+ Be polite, even if you don’t get what you want. Yelling won’t solve anything at all here and will likely reduce your chances of getting what you want.
+ State that you’re looking at transferring that balance elsewhere. This gives you at least some degree of leverage in the conversation.
+ Be realistic in your expectations. A 3% reduction IS a great success. If you have a $5,000 balance, 3% is a savings of $150 a year.

4. Look For Zero Percent Balance Transfer Offers
Once you’ve squeezed down the interest rates on your cards, see if there are any balance transfer offers available to you, either on your current cards or possibly on a new one (zero percent transfers are the best, but long-term ones that are lower than what you’re currently paying are solid, too).

Further reading: The best balance transfer cards for 2017.

The first place to look is with your current cards. Identify any balance transfer offers available with these (read the statements carefully) and note the interest rates and the term (the longer the term, the better, as after that term, you’ll start paying more interest).

Then, start transferring! Transfer your highest remaining card balances first and keep moving down the list until your interest rates are as low as possible. By this point, your master list has probably gone through lots of chicken scratches and revisions, so it might be worthwhile to just rewrite the whole thing with your current balance levels.

You should note that quite often doing balance transfers will result in a card having some of the balance at a certain percentage and the rest at another percentage. Since you often can’t control which portion of the debt you’re paying, I usually recommend figuring out the average interest rate for that card. So, let’s say you have $10,000 total on that card, with $7,000 at 3.9% and $3,000 at 18.9%. Just take $7,000 times 3.9 and add it to $3,000 times 18.9 to give you 84,000, then divide that by the overall bill total, $10,000, to give you 8.4%. This is the interest rate you should consider that card to have – it’s not perfect, but it’s a good thumbnail sketch. Recalculate it on occasion when you get a fresh new bill, as it will likely slightly adjust over time.

5. Look For Personal Loans
Your list of credit card debts should be looking a lot better, but let’s see if we can improve it even more by getting a personal loan. Stop by your local credit union, show them your credit card debt list, tell them your story, and ask if they have any options for consolidating these debts further. If your credit is still strong, you may be eligible for a personal loan; if not, you may still be able to get a solid loan anyway with some form of collateral (a home or something else of value).

Again, only accept such a loan if you’ve got a credit card debt with a higher interest rate still outstanding. If you can’t get a personal loan that beats any of your remaining credit card debts, don’t get one.

6. Liquidate
The next step is to liquidate some of your unnecessary possessions and use the proceeds to pay off the highest interest debts remaining. We all have stuff laying around that we don’t really need. When I went through my debt crisis, I liquidated a great deal of stuff – DVDs, video games, CDs, baseball cards, books, Magic: the Gathering cards, and some sports equipment went out the door in short order. Why? I wasn’t really using them and I knew that I could get some significant cash for all of that stuff.

Take a frank look at all of your possessions and ask yourself honestly which ones you actually are using regularly and which ones are gathering dust in the recesses of your shelves or the back of your closet. Then dig out those items and get some value for them. My recommendations:

+ Sell items that have significant individual value online, such as CD or DVD box sets, high-value individual trading cards, and so on. Those items will recover the value of the time you put into selling them online – most ordinary items won’t.
+ Take the rest of your unwanted items and attempt to sell them through appropriate dealers. Look to used media shops and collectibles dealers for places to unload the remainder of your items. If you’re trying to sell clothes, go to a consignment shop.
+ If there’s anything left, make a detailed list of it, take it to Goodwill, and get a receipt. This will help with taxes next year and you can use that tax rebate to help with your debt situation.

7. Develop a Debt Repayment Plan
Hopefully, your interest rate reduction efforts and your big sell-off have made your credit card situation a lot less scary. Now it’s time to develop a debt repayment plan. There are two big options.

The Dave Ramsey “Debt Snowball” plan means that you make a minimum payment on each debt, then make a large extra payment each month to the debt with the lowest balance. This will allow you to feel the success of eliminating a debt the fastest.

The fastest plan means that you make a minimum payment on each debt, then make an extra payment each month on whichever debt has the highest outstanding interest rate. This is the fastest route overall, but it doesn’t have that sense of success as quickly as Ramsey’s plan has.

Ramsey’s plan is easier to follow through on. The fastest plan will get you to debt freedom slightly faster. Both work. It’s up to you.

8. Practice Frugality and Snowflake
If you want to keep this train of positive progress going, the key is to learn how to be frugal in your day to day life. Look for ways to cut out unnecessary spending everywhere you look.

The best place to start is to evaluate your daily routine. Could you be using energy more efficiently? Is there anywhere you stop every day (or almost every day) to spend money? That’s likely a great thing to cut out of your routine.

How can this help? I like the technique known as snowflaking. Each time you make a choice that saves you money, immediately go home and take that much out of your checking account and put it into your savings. At the end of the month, sweep that total out and send it in as an extra debt payment. That way, you can directly see your frugal actions transformed into debt reduction.

9. Stick To That Plan With The Help Of Automated Payments
One way to ensure that you stick to the plan is to set up automatic payments through your credit card company and your bank.

Here’s one clever tactic. Set things up so that the credit card companies execute minimum payments automatically from your checking account. Then, set up with your bank a large extra payment each month to the credit card that you’re focusing on paying off. This way, you know your minimum payments are always correctly covered, plus you’re making a significant extra payment each month on one of your cards, too.

With everything being automatic, you don’t have to worry about anything other than making sure there’s plenty in your account to cover the transfers, and you can do that by learning how to be frugal with your spending. This plan also ensures no late fees or other unnecessary extra charges that you might accrue.

10. Don’t Stop
It might be tempting to stop this plan and go back to your old ways once the credit cards are under control.

Don’t. Reverting to your old habits will just cause this nightmare scenario to come back.

Instead, once your cards are paid off, start saving that money for your bigger dreams. Set up an automatic transfer with your bank into a savings account or an investing account each week so that you’re automatically saving. Eventually, that money can be used to buy a car or help you cover the down payment for a house – a much better outcome than a continuing spiral of credit card debt!

Good luck!

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