Reduce Your Credit Card Debt Now

Are you struggling to pay off your credit cards? Do you feel as if the whole thing is hopeless? Are you beginning to think that you'll just have to accept that you'll be in debt for the rest of your life?

I'd like to offer you some hope about all this debt you've seen pile up over time.

In my 6 years as a financial planner, I helped hundreds of families just like yours pay down their credit card debt quickly and easily without ever applying for a new loan. This may sound impossible at first, but it really isn't.

The method I shared with them is something called "debt stacking". You see, many people try to pay off their debt by paying a little more than the minimum payment on every card they own.

Are you doing this? Unfortunately, this actually dilutes your pay-off date. You want to get out of this debt as quickly as possible, right?

So, here's what you do. Gather up all your credit card statements and make a list. First, list the names of each card. Then list your balances, minimum payments required and interest rates. If you are already paying more than the minimum on a few, add up the total of how much money you're paying extra (above and beyond the total of all your minimum payments added together).

If you're only paying the minimums right now, you'll need to come up with what is called an "acceleration amount" that you can budget. Even if you can only free up $25 extra each month over what your total minimum payments required are, this debt stacking method will work for you.

Of course, if you can free up $50, $100 or more, you'll get out of debt much faster.

OK, now list your debts from the smallest balance on down to the largest balance. You're going to start with the smallest debt first. Instead of paying more than the minimum on several credit cards at once, you're going to only pay extra on that first credit card. All the credit cards below that one, pay only the minimums.

Now comes the discipline part of this. After that card is paid off, take the full amount you used to pay on it (minimum + the extra $50, $100, etc) and add that to the next credit card on your list. Don't go spending it somewhere else.

When the second card is paid, add the total you were paying on card #2 to it and keep doing this until all your debt is gone.

Here's an example:

Credit Card #1 has a balance of $1500 with a minimum payment of $35. CC#2=$2500/$75. CC#3=$5000/$125. CC#4=$8500/$215.

Let's say you have $100 extra to budget above your minimums. Start paying credit card #1 $135 each month (the minumum of $35 + your $100 acceleration amount) and then pay only the minimums on the last three credit cards.

When card #1 is paid off, you now add that $135 to the $75 minimum that credit card #2 requires from you. Now you're paying card #2 $210 each month. By the time you get to the last card, you're paying credit card #4 your entire $550 debt budget amount (you get this figure by adding up all your minimums plus your acceleration amount, $35 + $75 + $125 + $215 + $100 = $550).

Can you see how powerful this gets as you pay off each card? You're hitting each successive credit card with a higher payment, thus paying everything off more quickly. It goes slow until you get the first couple paid off. Have patience and you'll be out of debt in no time.

I used to run proposals for clients where their payoff structure before me would have them out of debt in 50 years. But I would then show them that this debt stacking method would have them out in 3, 4, 5 or 10 years, depending on the situation.

It works. If you want to pay off your credit card debt faster, use the debt stacking method.

Published by Matt Z. on May 17, 2006 08:22 PM