Credit card debt can be incredibly de-motivating, especially if you have a ton of debt and not much savings.
This depressing feeling I know too well. You want to get rid of the debt, but it is going to take a ton of focus and time to get back to a $0 net-worth.
When you figure out where you want to be, and realize how much work it is going to take to make the progress you want, you want to act as fast as possible.
If you were like me, you spent many years with credit card debt. In fact, I got so sick of paying off credit card debt, I wanted the financial pain to stop as soon as possible.
It took time to build the debt; it is going to take time to get rid of it.
And it isn’t just about getting the debt paid off. It’s about creating good financial habits to set yourself up for success and avoid the same mistakes of the past.
This is how you can start growing your net-worth exponentially over time. You aren’t going to get here overnight. Each positive decision builds on top of each other, and you will start making more progress faster. But you need to get rid of this debt first!
Time is Important
When I got to the point of realizing where I wanted to go, I determined that time is the most significant factor. I lost a ton of time, and I needed to make up lost ground.
Spending 1-2 years paying off our last credit card balances seemed like an eternity.
But if you look at the bigger picture, two years is not going to make or break your financial future. The bigger deal is to get rid of that debt, and not go back into credit card debt again (if you can help it).
The goal here is to set yourself up to be in a strong financial position in the next 5-10 years. Part of that process is getting rid of this high-interest debt so compound interest can work in your favor.
Plan Your Debt Payoff Strategy
If you follow or heard of Dave Ramsey, you most likely know about the debt snowball method.
The idea is you pay off your lowest balances first, so you make faster perceived progress. This can give you additional motivation in staying on target and getting rid of that debt.
But you also need to realize the debt snowball method is not a magic pill — which is why you might want to consider not using the debt snowball method.
In either case, creating a plan will help you do the following:
- Gives you an idea in how long this debt payoff phase might last
- Allows you to make sure you are on the same page with your partner (if you have one)
- Allows you to iron out your budget
Without a plan, you might feel like you are spinning your wheels, especially if you are paying off a massive amount of debt.
Look at the Details of Your Situation
At first, paying off credit card debt might feel like a waste of time.
To combat these feelings, I liked to look at how much interest I was paying each month for each of my debts.
This does a few things:
- Reveals how much money you are sending these companies every month, and getting nothing out of it
- You see the amount of money you will save when these credit card balances are gone
- Actively seeing the interest charges go down as the balances decrease is motivating
- For every month that passes, the closer you get to your goals
You can see exactly how much interest you are paying each month by viewing your credit card statement. Pulling up the last one should give you a rough idea in how much interest you are paying.
Seeing this number should make you angry because you aren’t getting anything in return from these fees.
Don’t Compare Yourself to Others
Each of us is at a different point in our lives. Some of us have kids and are married, and others are farther down their financial journey.
When you compare your progress with what others are doing or have accomplished, it might make you feel hopeless.
And when you aren’t full of hope, you risk abandoning ship. Jealousy can set in and hold you back.
I’ve started to watch my thoughts when I read about others who are at a stronger financial spot than me. I’ve been trying to avoid comparing where I am at with their situation, and instead, think about the possibility of reaching that level if we can keep on track.
Instead of comparing each of our progress, we should be motivating each other to continue towards our financial goals. Each of us has different priorities and life experiences, and we can’t change the past. The only thing we can do is change what we are doing now and our plans for the future.
When someone is doing much better than you, that doesn’t reduce the chances of you hitting your goals too. We aren’t in a race where only a few people can win. The more people who can reach a stronger financial position, the stronger it will make our overall economy (even if you live outside of the U.S.).
Balancing the Budget
Especially when you are paying off debt, I think it is essential to have a good idea in exactly how much you are spending every month. Otherwise, you have no sense in if you are spending too much in specific categories, and where it makes sense to cut or expand.
This idea was the hardest part of paying off debt for us. Sometimes it felt like we were cutting too much, other times it felt like our spending was way higher than it should be.
Could we have decided never to eat out? Yes. That would have saved quite a bit of money. But it also would make things difficult, because sometimes getting a quick bite to eat, or spending an evening out, is a great way to make memories and save time. Sometimes work can be extra stressful or hard, or maybe we aren’t sleeping very well.
Being cognitive in what areas you should cut back on or expand also requires a deep level of communication with your partner.
In our case, we decided to land somewhere in the middle. By having things be not too tight in every category, gave us some extra breathing room. And it increased the chances that we were going to stay on track.
Defining Your Budget Priorities
Is making extra progress on paying off credit card debt worth sacrificing memories? Yes, and no.
Having positive memories with your family and friends makes life so much more enjoyable. But like everything else, it requires balancing things out.
Maybe you decide to plan a larger vacation when you get debt-free — or planning low-cost trips that get the family out of town for shorter periods of time. Or you could look at figuring out how to optimize credit card rewards and get free money.
The idea that I am realizing the older I get is that the present is just as important as the future. You don’t want to sacrifice either one. You want to live life in a way that you can pursue both at the same time!
Where you are at in life will change your priorities. If you have kids, this might mean sacrificing less of the present. If you have a small amount of debt, a deep sacrifice for a short time might be worth it. In either case, you need to understand what is important to you right now and adjust your spending to match those priorities.
Adjusting with Time
At first, I thought that it was best to create a plan and stick to that plan as closely as possible. But sometimes this can work against you.
There is a time to be rigid, and sometimes this works. But if you have a family or a partner, it might be best to adjust things as time goes on.
The idea that you have to stick to a strict plan to reach your goals might be making a big issue out of something small. Sure, this might mean you end paying off debt for a longer period of time, but this is still better than making your family miserable. Or you might try implementing your plan, and realize things are too tight.
Especially if you are looking at paying off a massive amount of debt, your plans will most likely change over time. Don’t feel bad or guilty about this. Just calm down, figure out where you are at, and what you want to change.
Creatively Increase Your Income
Sometimes it can be easier to generate more money than it is to make deep sacrifices in your budget. But you also might be able to do both partially.
Maybe you can take a few extra hours for overtime pay each week. Or take on additional clients for the short-term.
Just like everything, it requires balance in making sure you aren’t sacrificing what is most important to you. But increasing your income can shrink your timeline or provide more margin in your budget.
In our case, we decided to take on more debt to start a business temporarily. It did mean we had to extend the amount of time required to pay off all of our debt, but we also dramatically increased our income. And within a year, this paid off tremendously!
Is starting a business when you have a bunch of debt always the best decision? Probably not. But it made sense for us. We had a good idea of the risk, and the potential income this could bring in. We are glad we took on that risk, and we are reaping the rewards now.
Simplify Your Finances
The more you can simplify your financial life, the more time you save, and it increases the chances of staying on track.
Most of this involves automating your bills and creating a system for you to know how much you can spend. Once you get to this point, you can pay your credit card bills first, and save on interest you would pay that month.
These days, pretty much every bill can be automated. If you can get one month ahead of your budget, where you have 100% of the cash you will spend for the month on the 1st, will make managing your finances so much easier.
Don’t Lose Sight of the Goal
Paying off large amounts of debt is hard. But if you can generally stay on track, you will not regret getting rid of this debt. You open yourself up to more options in the future, and when you can start seeing a positive net-worth increase every month, all the pain to get to that point will be worth it.
Chris Roane is a financial blogger who loves to be transparent about money-related issues. He’s paid off massive amounts of credit card debt and is the blog author of Money Stir. His main focus on Money Stir is talking about how money relates to our relationships, personal development, and how to plan for the future we want. He’s been quoted on Market Watch, The Ladders, and other publications.