Managing Your Credit Card Debt

There are many different strategies for climbing the mountain of debt. Honestly, I think it is a little like dieting… I’m not sure there is an easy answer or a “right” answer, I think it’s just picking the method that works for you and then sticking with it. The important thing is to get a plan in place that works the best for you and your family and then go for it. God is with you. His heart is for you to be free, and I believe as you step out and begin, you will find His grace and strength are right there with you. I am going to be presenting a strategy today for managing and conquering your debt. It is not the only plan that will work, but if you will just go for it and implement it, I believe that it could be the “weight-loss miracle” for debt that you have been praying for.

If you have been following this blog, you are now at a place where you have a budget in place for your income, so you should not be incurring any more debt. You have started your savings plan for emergencies and other dreams, and now you are ready to strategize concerning your debt. So let’s say that you have 4 credit cards that are maxed-out (you have spent up to your credit limit on the cards) and are ready to begin to pay down your debt. Where do you start? Well for starters, you begin by at least making the minimum payment on all of your cards. Not making the minimum payment can wreak havoc on your credit, your credit score, and compound your debt with penalties and fees. This is not an option. Making the minimum payment on all of your cards is absolutely necessary, however it will not move you any closer to freedom.

You have to pay towards the principle as well. I want to talk to you about the really ingenious concept of “snowballing.” The gist of it is, you are going to take your card with the lowest balance and begin to aggressively pay it off first. Instead of paying a little more than the minimum payment on all of your cards, you are going to pool all of your resources towards getting that first card paid off as quickly as possible. Once that card is paid off, you are going to take everything that you were paying towards the first card (minimum payment and additional principle) and put that towards the card with the next lowest balance. As each debt is paid off, the money that you were paying towards the last card is added to what you are able to pay to the next card. Eventually as you face your card with the largest balance, you will be able to put all of your resources towards paying that card down as quickly as possible! Thus your payments “snowball” (they gather snow and get bigger as they go) until they are going to have a formidable impact on your debt. I love this strategy, and if you are facing balances on multiple credit cards, this is your starting point.

Well actually, your starting point was in my blog a few days ago when I talked about determining exactly what you owe and calling your creditors to negotiate the lowest interest rate possible (click here to read it). I am assuming that you did this (or are doing it) and are now paying the lowest rate possible on debt that is not continuing to grow. So if you have 4 credit cards with a $500 balance, a $1200 balance, a $2000 balance, and a $4000 balance, you would first negotiate the lowest interest rate for the cards, then determine the sum of your debt (which would be $7700). You will need to add up the minimum payments for each card.. so lets just say that is $500 a month, and then look at your budget and determine how much you can afford to put towards your debt each month. You squeeze and purpose and come up with an additional $200 towards your debt. You would then put all of this $200 towards the card with the lowest balance. So if your card has a minimum payment of $50, you would be paying $250 towards your lowest balance card, and also paying the other $450 towards your other minimum payments. Then as you pay off the lowest balance, you would take that $250 and add it to the minimum deductible that you are paying towards your next lowest balance card. And so on…

Now, you may not be able to put an additional $200 towards your debt, but there is always something that you can put towards your debt. Let me just tell you, the answer to this can never be “nothing”. God’s heart is for you to come out of this debt, so there is always a way through. It’s amazing to me that as I look at people’s finances they will say things like, “well, I’m not willing to give that up, or I have to have that”, and I sometimes feel like my jaw just wants to hang open! I am not saying that you have to give up everything in order to get out of debt, but I think you do need to be WILLING to give up everything. You have to set your heart, that whatever it takes, I am going over this mountain. This is where the vision of what waits for you on the other side is going to carry you: a life without financial bondage, a future for your children, provision for your dreams, a place where anything is possible, rather than a land shadowed by debt where everything seems impossible. A time line for debt will also help you because the journey is NOT forever! This is just for a season and it is for an incredible purpose. Have your “latte” on the other side of the mountain, but for now, just get your tail over the mountain!

Now strategies vary on which credit cards to pay first. Some people will tell you to pay the card with the highest interest rate, but I personally believe that success is an excellent motivator. As you pay off the lower balance cards, you are going to get so excited as your debt load simplifies and you begin to see results. I strongly recommend making a chart of all of your creditors names / interest rate / amount owed / minimum payment / additional principle. I saw this a few years ago on a TV show. Several financial advisors were helping people conquer their debt and they had them write their debts out on a huge poster board and then hang it in their home. As they conquered each debt they would cross it off the chart and have a celebration. They also tracked the time line until they were out of debt on the chart… so “14 more months until we are debt free!” It is so important to keep the vision in front of you and with debt this is especially true. Each of your debts and your payment plan should be included on your printed budget, so you can track it there. But sometimes it helps to see the plan a little bigger when you are facing a mountain. There is a great debt calculator here that will help you to get an idea of how long it will take you to get out of debt based on your minimum payment, interest rate, and extra principle. It will also help you come up with a plan.

And for the rest of the strategy, I am going to for once say, “to be continued.” There is just a lot of information and I don’t want to overwhelm you and I don’t want to leave out anything strategic. So please come back tomorrow for strategy on topics like “credit counseling”, whether to consolidate your debts, transferring your balances, and “I’m getting a huge tax return. Which card do I pay off first?” But for today, I just want to leave you with this,

“The Lord bless you and keep you; The Lord make His face to shine upon you, and be gracious to you; The Lord lift up His countenance upon you, and give you peace.” Numbers 6: 24-26

You are in my prayers today as you begin to climb your mountain of debt, that the Lord would shine on you with his favor and grace and make your journey easy and light. What a celebration party you are going to have on the other side of this mountain, and I just hope I’m invited 🙂 I’ll see you tomorrow.