A month ago, I posted about paying off all $35,000 of my credit card debt in 2013.
The steps I wrote about in that post focused largely on the proper mindset that worked for me when it came to taking control of my motivation, which in turn helped me to take control of my credit card debt and ultimately, demolish it.
For me, those steps were:
- Having an attitude that focused on my progress, not my debt
- Setting realistic goals
- Not being afraid to make lifestyle changes and writing down a budget
- Learning as much as I could and working hard
I think those are supremely important, but understandably, some of you mentioned privately that you were hungry for more numbers. To those of you, here then are the math and charts behind that debt payoff.
Step 1: Setting a high baseline
When I came up with the initial goal, I set a high baseline of paying $2,000 per month toward my credit card debt. This also required setting up a budget to make $2,000 available every month.
Step 2: Asking for lower interest rates
Early on, I asked for lower interest rates — just called up my credit card companies and asked politely. I thought it was dumb too, but one company lowered my rate by 1% and another by 4%.
Alone, it saved me about $350 in interest
Step 3: I used a 0% balance transfer
True, transferring $14,500 to a card with a one-year 0% promo rate didn’t knock any money off my debt. But it did prevent my payments from being eaten away by interest so much — to the tune of over $1,200.
Step 4: Divert other financial goals
I was already holding off on paying other debts with lower interest rates — namely, my student loans — but I also lowered the amount I was sending to my company’s 401(K) retirement plan down to only the amount where they offered a match. This added about $400 per month to my payments, which had a huge effect on my payoff.
Step 5:Send all cash windfalls and extra cash from good budgeting straight to debt
This was the biggest difference.
I got used to living on a certain amount, so when I got an unexpected lump of cash — for example, from emptying out piggy banks, selling gift cards from graduation, bonuses, and tax refunds — it didn’t feel like I needed to spend any more, so I could send that money straight to debt. Then, if I could cut my budget even more, it was basically like finding money that could be used for debt payment.
In 2013, I averaged over $400 in “found money” per month which went to credit card debt (net of what I sent to student loans).
And those are the simple financial steps — and the slightly tougher budgeting steps — that let me pay off all my credit card debt in one year.
Were there other things I could have done that I missed?
Hope you have a great week!