Ramit Sethi Says to Watch Out for These Dangerous Credit Card Delusions

This kind of flimsy logic keeps people stuck in credit card debt.

Credit card debt is a difficult subject to tackle. People usually don't want to think they're in a bad position financially or that they've made mistakes with their credit cards. That's why some prefer to rationalize and downplay the situation.

Financial expert Ramit Sethi refers to these rationalizations as "credit card scripts." They're the ways you convince yourself that your debt isn't so bad. If you fall into this trap, it can be a serious impediment to getting out of credit card debit.

How credit card scripts hold you back

Credit card scripts aren't discussed often. To better understand what they are and why they're so problematic, here are some examples of credit card scripts that Sethi mentions:

"Everyone has credit card debt. At least I don't have as much debt as Michelle." People compare themselves to others all the time. By using this kind of script, you're still the responsible one next to your friend who's carrying around more debt. That makes you feel better, but having less debt than someone else doesn't change your situation.

“I probably shouldn't buy this, but $100 is just a drop in the bucket compared to how much I owe." This is one of the dangerous parts about having a large amount of credit card debt. It becomes tempting to see any small change as practically worthless. If you owe, say, $5,000, you might start telling yourself that another $100 doesn't matter. However, most people don't pay off credit card debt in one fell swoop. It's the small, consistent changes that make the biggest difference over time.

"Paying interest is just like any other fee." By pretending that credit card interest is just another fee, it normalizes carrying debt. But credit card interest rates just hit a record high, and many cards have rates of 20% or higher. Those interest charges aren't some minor cost you can write off.

"These credit card companies just try to trap you." It's true that card issuers make money from interest charges, but paying interest is entirely avoidable. Putting the blame on the credit card companies is a way people avoid responsibility for their debt.

Scripts like these are common, and it's understandable why people use them. They're a defense mechanism, but they come at a cost. You're unlikely to take the necessary steps to pay off credit card debt if you've convinced yourself that it isn't so bad or that the system is rigged.

How to rethink and repay credit card debt

You don't need to feel bad because you have credit card debt. It happens to lots of people, and getting down on yourself about it doesn't help. However, it's also important not to downplay it. If you treat it like no big deal, you'll spend more time in debt and pay more in interest.

Instead, look at credit card debt as a financial problem to solve. The goal is to take your card balances from wherever they are now down to $0.

How can you do that? Stop using your credit cards, for one, so you don't add more to your debt. You'll also need a repayment plan, so gather the following information:

• Your monthly take-home pay
• Your fixed costs (essential expenses)
• Balances, minimum payment amounts, and interest rates for all your credit cards

Based on your income and fixed costs, decide how much you can afford to put toward your credit cards per month. If you take home $5,000 per month and spend $4,000, that's $1,000 in disposable income. Although you might not be able to put all your disposable income toward debt every month, aim to use as much of it as possible for debt payments.

Make minimum payments on all your credit cards to stay current on them. After making your minimum monthly payments, put all your extra money on one credit card until it's paid off. You can focus on the credit card with the highest interest rate first, which is known as the debt avalanche method. Or, you can focus on the credit card with the lowest balance, which is known as the debt snowball method.

The debt avalanche and debt snowball are both popular ways to pay off debt. The debt avalanche saves you money on interest, whereas the debt snowball helps you cut down on how many cards you need to pay off more quickly. Each one works, so it's all a matter of personal preference.

There's always a way out of credit card debt. Once you commit to a payment plan, you may also want to see if you can consolidate your debt to save money. Two popular ways to do this are balance transfer credit cards and personal loans. However, the first step toward making progress is getting rid of any credit card scripts that have been holding you back.