When used properly, credit cards can offer some amazing benefits and perks, allowing you to parlay everyday expenses into loyalty points that can be used for family vacations or cash back rewards. However, if they are not used with discipline, they can also set into motion a death spiral of debt and interest payments that can take sacrifice and many years to escape. Here is a three step process I use with clients to help them get out credit card debt, and stay out.
Get Some Momentum Out of the Gate
Most people that find themselves in credit card debt got that way by giving in to the immediate gratification urge instead of exercising the muscles of self-control and delayed gratification. It's difficult to change this habit cold turkey. To satisfy that immediate gratification urge, I recommend paying off the credit card with your lowest balance first, regardless of interest rate. Get some good vibes flowing and momentum going before you get more strategic with which card to pay off next.
Get Strategic & Tenacious
Once you've got your mojo from paying off a card or two, I recommend figuring out which of your cards is charging the highest interest rate. Make minimum payments on everything else and just attack the balance of that one card with everything you've got! I've seen some cards charging as much as 28% interest rate and if you don't get that balance down ASAP, you run the risk of living in minimum payment interest only purgatory. If you only make minimum payments on high interest cards it can take as long as 30 years to pay it off.
Don't Fall Back into the Trap
After you have climbed that mountain and paid off all your credit cards, don't ever allow yourself to get in that position again. If you want to take a vacation or make a purchase that you can't cover with your current bank balance...DON'T DO IT!!! Plan ahead and save for it. I recommend setting aside 3 - 6 months expenses in a savings or money market account in addition to saving for any major expenses to avoid falling into the credit card pitfall.