Beating Credit Card Debt

By LouAnn Lofton (TMF Lou2)
March 29, 2000

Like the blood on Lady Macbeth's hands, credit card debt can be a nasty blight on a Fool's financial life. But credit card debt can be scrubbed away with perseverance, patience, and courage. Listen to the tales your fellow Fools have to tell, and learn more about washing your hands of credit card debt forever.

This article is inspired by the many Fools who have shared their success stories on our Credit Card message board. It's a place to find encouragement, motivation, and ideas to help conquer the beast. The ideas shared here come directly from the board.

One of the shining examples on the Credit Card board is jthrelkeld. Over a 14-year period, she managed to ring up $20,000 in credit card debt. But beginning in 1999, she and her husband looked that monster in the eye, made changes in the way they managed and spent their money, and planned to have it paid off by March 2000. They beat that goal, and paid it all off by December 1,1999! $20,000!

She was kind enough to share her insights with other Fools. Here are some of her suggestions:

The hardest initial hurdle, she says, was psychological. You must face your situation with brutal honesty. After owning up to your responsibility and the pure dollar figure of what you owe, commit yourself to taking action and making sacrifices.

Next, she suggests "make your money work for you." Take the cash you may have in a checking or savings account and move it to a money market account housed with a brokerage so you can earn more interest. Set up an easy transfer system between the money market account and your checking account so that when you do need to pay bills, you can readily get the money back in there.

She then set up a budget for herself and her husband and stuck to it, searching for places where expenditures could be cut in order to more aggressively pay off the cards. She suggests shopping at sales, buying the generic brands of food at the grocery store, eating at home rather than out at restaurants, using the lowest grade of gas possible for your car, and using libraries instead of to satisfy your book cravings.

She also used the "sister" message boards to the Credit Card board here at the Fool -- Living Below Your Means and Budgeting -- and found them invaluable.

But, jthrelkeld is not alone. Many other Fools have amazing victory stories on the Credit Card board. There's KarenFool1, who owes about $75,000 between her credit card debt and loans she took out against her profit-sharing plan (like a 401(k)). She hasn't paid it all back yet, but she's taken some drastic steps in her life and she's well on her way there.

First of all, she took three whole days to analyze her spending over the last two years. In her words, she discovered, "It's the small stuff" -- a Grande-Non-Fat-Latte here, a pack of gum there, a bought sandwich for lunch instead of one from home. Watching those small expenditures is key. She used Excel to make an existing budget more realistic. She moved into a cheaper apartment that offered free cable. She cut off her cellular phone. She closed all of her credit card accounts except one and went 100% debit card. She now has money freed up she didn't even know she had, and she's able to pay more than the minimum each month on her debt. She expects to have it paid off fully by October of 2003.

CaDreamer just became debt free after her credit card debt reached a monstrous $28,900 in January of 1998. She suggests consolidating your debt onto lower interest rate cards immediately as a first step towards debt freedom. phantomdiver just paid off the remainder of her debt, and used her tax refund to do so. She says that any "found" money (tax returns, bonuses from work, gifts) should be applied directly to paying down your debt.

You'll not only find inspiration on the Credit Cards board, you'll find help galore and advice for doing it yourself. krissylou suggests setting aside some "mad money" for splurges every once and a while during your time of battle. As she points out, if you restrict your spending too much, you're more likely to slip up, as a dieter may slip and eat six bowls of Ben & Jerry's because he hasn't allowed himself to have even one bite in weeks.

aFoolishEngineer tells other Fools that Quicken financial software has helped him keep track of his expenditures and shown him where he can cut back. Before spending money on something, he suggests you ask yourself very seriously: "Is this a need, or a want?" Answering that question truthfully will often result in a nod to the latter category. When that's the case, don't buy it.

Another Foolish tip is offered up by mcjanner (she signs her posts as TriChick). She suggests that after you've decided once and for all to pay off your debt that you cut up those credit cards before they're paid off. That will prevent any further spending in moments of weakness, and you'll feel a satisfaction in knowing that those cards hold you hostage no more.

StickleyFan5 suggests sending your credit card companies small weekly payments in addition to your monthly payments. Along with your check and account number, just include a note telling them that you're making an additional payment.

Finally, I'll offer up a valuable and funny lesson from the poster known as AntiTrader. It's an illustration of just how silly (and expensive) those things are that you may be buying on credit right now -- those things you think you need. He recounted for other Fools the story of the first item he ever bought on credit back in the early 1990s -- a shirt dubbed "cool" by a girl he admittedly had a crush on.

He goes on to explain that the shirt was no longer "cool" two years later and he ended up giving it away to the Salvation Army. He then calculated the shirt's true cost, using the interest rates on his credit cards in the years after the purchase. Thanks to the interest, a $42 shirt that he gave away after two years ballooned into a $112 shirt. And it took him ten years to pay it off!

Thanks to AntiTrader for running those numbers, and for reminding us of the cost of credit. Before buying something and saying, "Just charge it," ask yourself how much the item is really worth, and if you're willing to pay that much. If you aren't, chances are you don't need it and don't need to buy it on credit.

There are lots of resources here on the Fool to help you conquer credit card debt. You aren't alone. Ask other Fools for help. Rejoice in their triumphs. Read through our Getting Out of Debt in our Personal Finance section. Use our calculators to figure out if you should consolidate your debts, or how interest rate changes will affect your balance. Most of all, keep the faith. You'll have that debt paid off before you know it.

 Related Links

  • Getting Out of Debt
  • Credit Cards Message Board
  • Credit Cards Board FAQ
  • Living Below Your Means Board
  • Budgeting Board
  • Foolish Calculators