How to eliminate credit card debt strategically

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How to eliminate credit card debt strategically

10 years back, I was one of most excited kids on the block. Why? Because Citibank had just delivered me my first credit card. Boy, was I on top of the world! I had already planned out well in advance on how I would spend that money. And being frugal was not part of the plan at all. Little did I realize the debt trap (read that as deathtrap) I was getting into. It was just a matter of 3 months before I maxed it out. But guess what, by that time another bank took it's turn in serving me up with another credit card. Life was good, or it surely seemed like that.

It was not until 2 years after that initial credit card purchase that I realized my folly. I was deep in debt with 3 maxed out cards. Struggling to pay off the cards out of my paycheck, life became uninteresting. I vowed to be debt-free and took it as my personal mission. The result? After 6 more years I had 7 maxed out credit cards and a huge personal loan to pay off (which by the way I had borrowed to pay off my credit card debt).

Have you gone through such a situation before? I am sure most of you have. I had gone numb with desperation to get out of this cashflow draining hole. After searching fervently for answers, I finally found one which I hoped would stick. I tried it and it worked! At the time of writing this article, I have managed to pay off two credit cards and well on my way to clear the rest completely. How did I do it? Read on to find out how.

One of the dilemmas that you may have is which card to pay off first. Many people advised me to pay off the one with the highest interest rate, as that drains you the most. I tried that method and failed miserably. You can see I went from 3, to 7 maxed out cards using that technique. The successful method that I came across was something that Robert Kiyosaki and Kim Kiyosaki had used to pay off their debts when they were $400,000 under. It had worked for them, so I decided to try it. It did work, in fact, it worked like a charm. Here's the key philosophy behind this technique: Focus on time, rather than money.

Follow these step-by-step procedures to get out of credit card debt (see the illustration for better comprehension):

Take a sheet of paper and on top left side draw a quadrant

In the top left part, write down the name of the credit card (e.g. Citibank Gold)

In the top right part, write down the total amount outstanding (X) (e.g. $12,000)

In the bottom left part, write down the minimum monthly payment required (Y) (e.g. $500)

In the bottom right part, divide the total outstanding (X) by the minimum payment (Y). Write down that number up to 2 decimals (Z) (e.g. 24)

Do the same exercise for each of the other credit cards that you want to eliminate, on the same sheet of paper

Now compare the ratio (Z) among all cards, and write down #1' against the quadrant having the lowest ratio (Z)

Proceed to the next card with the next lowest ratio (Z) and mark a #2' next to it

Continue doing this in ascending order for the rest of the cards

Once the above exercise is done you should have a complete overview of all the credit cards' status. Now comes the most important part about how to pay these off. Follow these step-by-step guidelines.

The first card you will target is the one marked #1'. Basically, this is the one which can be paid off soonest (Remember the philosophy? Focus on time, not the amount)

Pay off as much as possible more that the minimum payment due on this one. For example: If you have $630 to spare and the minimum payment is only $500, credit the full $630 towards the card #1. Note: Keep paying ONLY the minimum amount due for the rest of the cards. Don't give a dime more than the minimum. Not just yet.)

Keep doing this month after month all the time focusing on paying as much as possible towards card #1, all the while paying only the minimum due for the rest

Once you have paid off the card #1 in full, then strike off that quadrant from the sheet of paper with a red pen.

Go off and celebrate to mark the success. Go for a movie, party, basketball game, etc. (Don't use the credit card though). It's very important to celebrate as the positive emotions then get linked to closing down of the credit card in your subconscious mind. This will help you psychologically to keep moving to pay off the rest.

Next is to target card #2. This time round, also use the money that lies spare every month from the payments that used to make towards card #1. So now you have lot more money to throw at card #2. Remember to keep paying the minimum due only towards the rest

Once paid off, strike it off your sheet and celebrate

Keep doing this on each card, proceeding as per the sequence listed on the sheet

If you keep following the above method, I guarantee that you will pay off your credit cards in record time. It's all about focusing your energy on one card at a time. That is the secret. Jim Rohn once said, "Time is more important than money; you can always get more money but you can never get more time".

God Bless.

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