How to pay off credit card debt

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Paying off a credit card takes a lot of hard work. On this article I will take you through my personal journey of how to pay off credit card debt.

I am grateful to God who helped and guided me during this journey which proved to be very tough. The key motivation was that the scriptures say the just will live by faith. If you believe that you can surely get rid of credit card debt, you will surely do it.

Understanding credit card debt

Credit card debt is not like personal loans or car loans. It is very easy to abuse a credit card especially if you don’t understand it well. Before you think about paying credit card debt, you need to understand what makes this type of debt stubborn.

1) Credit cards are designed for spending money.

• This is very important to know so that you will not abuse the credit card.
• You get higher reward points for using the credit card.
• This becomes a big problem when you end up buying things that you could not have purchased when you didn’t have the credit card.

2) Credit cards are lifestyle products.

• A life style product is designed to suit certain type of customers.
• Credit cards are tailor made for middle income earners.
• If you are trying to manage your lifestyle, credit cards are not for you.

3) Credit cards are “only beneficial” if your discipline with money is good.

• The fastest way to build a credit score is via a credit card.
• If you have a good discipline, you can buy with a credit card and make sure you pay the balance off quickly preferably before it starts charging interest.
• However, if your discipline is questionable, the disadvantages will outweigh the benefits.

4) Credit card debt is revolving.

• This means that when you repay a portion of what you owe, you can use the money again.
• The end result is a scenario where you will keep owing the same balance for many years – circling on one point like a rat race.
• This is what makes credit cards very difficult to pay off.

5) Credit card interest rate is very high.

• Credit cards are not secured by any asset.
• This type of loan is very risk to the lender and in order to manage this risk, the lender charges high interest.
• This is why using a credit card to invest in a business does not work most of the time unless if the business generates profits higher than the interest.

How to pay off the credit card debt

For many years I have been carrying credit card debt with no idea how to pay it off. I read through different articles and books about paying off debt but nothing worked. I started seeing progress when I started understanding the credit card more. Understanding how the credit card affects or influence my behavior was the starting point towards the journey of paying off the debt.

1) Stopping the reliance on debt for short term needs.

• After analyzing previous budgets, I realized the key reasons why I was relying too much on credit cards:
  • Underbudgeting on daily needs
  • Lack of discipline with spending
• To solve the issue of underbudgeting, I analyzed budgets for previous months and came up with an average figure that should be allocated for daily needs.
• To limit the temptation to use debt when the planned budget exceeded actual expenditure, I added a miscellaneous expense to the budget..
• The miscellaneous expense allocation was more like an error of judgement fund/mistake fund.
• This acted as the first line of defense when actual expenditure exceeded planned expenditure.

2) Freezing the credit card on the bank app.

• The credit card problem is usually a discipline problem.
• To ensure that there is no temptation to spend again, I ensured that my credit card was as good as destroyed by freezing its functions except for incoming money.
• This literally changed the credit card into a personal loan.
• This was helpful because the money paid on the card was not spend again.

3) Paying more than the minimum required.

• If you are not reusing the money you paid, adding extra money will reduce the outstanding balance.
• In my case I started putting more money into the credit card with a well defined target to pay the card off quickly.

4) Reducing credit card limit.

• Reducing the credit card limit ensured that what I paid on the card was locked in and it would not be available to use again.
• However, this created another unwanted problem – my credit score dropped.
• When you reduce the limit on the credit card, this can also reduce credit utilization and it will appear as if you are depending heavily on debt.
• To manage this, I ensured that after reducing the credit card limit, my utilization remained less than 50%.

Summary

• Credit Card debt problem is a behavioral or discipline issue.
• To pay a credit card off, you need to understand how it works.
• The following can help to know how to pay off credit card debt:
  • Having a miscellaneous expense on your budget.
  • Freezing your credit card.
  • Paying extra money.
  • Reducing the credit card limit.

Additional articles

• How I paid off my personal and car loans early
• How a credit card affects your credit score