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To Climb Out of Credit Card Debt, It Helps to Have an Attitude

May 11, 2015
Paying Off Debt, Personal Finance
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By Doug Bellfy

Learn more about Doug on NerdWallet’s Ask an Advisor

Staying cool and levelheaded about your finances is always a good idea. But there is a time when it pays to take things personally, become emotional, and get mad about money.

Case in point: Many have dug a hole for themselves in credit card debt. Among U.S. households with credit card debt, the average debt is $15,609, according to government statistics crunched by NerdWallet. Living with credit card balances doesn’t make good financial sense, especially if it’s high-interest debt.

To attack the problem, it helps to get angry: View it as these companies are stealing your money. It’s time to do what it takes to conquer your debt and kick these companies out of your wallet.

Not sure how to get started? Here are answers to some frequently asked questions to help you formulate a battle plan.

» MORE: How to pay off debt

What’s the best way to pay off multiple cards?

There are two schools of thought on this. One method is to prioritize your credits cards from the lowest outstanding balance to the highest. Pay the minimum amount due on all except the one with the lowest balance, and focus on paying that one off first. Move up to the next lowest, and continue this way until all are paid off.

The other method is to prioritize your cards by interest rate. Pay off the card with the highest interest rate first, and continue until all the cards are paid in full.

Both methods are effective; the choice depends on your internal reward system. If you are the type of person who feeds off the adrenaline rush of closing out a card and cutting it up, you should use the smallest-to-largest-balance method—you will score a quicker victory, and this will keep you motivated. If you’re a math nerd, you should choose the highest interest rate first. It’s the best course of action mathematically.

Whichever option you choose, keep in mind that the biggest factor will be how much money you direct to the card balances.

Where do I find the extra money if cash is already tight?

Taking the attitude that credit card companies are stealing from you is a good motivator. Seize control by examining every aspect of your spending habits. Get serious about sticking to a budget.

Cut cable and watch Netflix instead. Borrow DVDs from your local library. If you smoke, try to quit (that’s a “two-fer”—you’ll improve your health and save money). Make meals at home instead of going out to restaurants. Use coupons when you shop. Bring your lunch and coffee to work.

Always ask for deals and remember that everything is negotiable except death and taxes. Examine every purchase before you make it and tell yourself, “If I buy this on credit, XYZ credit card company gets to steal more money from me.”

I have very little savings. Should I pay off my credit cards first or start saving?

A good rule of thumb is to have three to six months of living expenses in an emergency fund. But if you are saddled with credit card debt, solve that problem first and then start building your emergency fund.

Repeat your mantra, “There is no way I’m ever going to let a credit card company steal from me again.” Then add, “My emergency fund is going to protect me.”

To stay motivated, save the stick for the credit card companies and use the carrot for yourself. Think of something you really want (or want to do) that equals about 1% of your net pay. Put a picture of it on your refrigerator next to the list of credit cards you are paying off. After you eliminate your debt and have three to six months of cash in the bank, save just a little more to afford this treat. Take the cash and buy it!

I’m free of credit card debt and have my emergency fund. What’s next?

Start to invest for your future, such as college, retirement or a second home. To get advice on goal setting, saving and investing, find a fee-only financial advisor who is a fiduciary (and will put that in writing). You can find such an advisor by searching NAPFA or Garrett Planning Network.

Image via iStock.