4 Tips to Wipe Out Credit Card Debt

Do you feel the burden of credit card debt? Imagine what it feels like, if you didn’t have to make those monthly payments.

Credit card debt affects people across all income levels. We have a client who works at a large technology company but feels stuck with a $40,000 credit card debt. We have another client who earns more than $250,000 a year but is having to deal with $50,000 in credit card debt. Common reasons of plastic debt include unemployment, family medical emergency, and lack of a spending plan.

You’re not alone, and there’s no need to feel shame. There’s light at the end of the tunnel. One of our clients just finished paying off all her credit card debt, after more than 2 years of collaborating. It’s exciting!

If you’re now motivated to free yourself from this burden, consider these four approaches.

1. Do a 0% balance transfer, then aggressively pay that off over the next 1-2 years. The most common mistake people make with a balance transfer is they only pay the minimum and forget the ‘pay aggressively’ part. They often end up with the same balance they started with.Doing this correctly can save you several thousand dollars in lower interest payments. The 0% interest promotion typically lasts for 15 to 21 months. You often have to pay a one-time 3% fee to do the balance transfer. This often works if: 1) you have an existing card where you can do a balance transfer, or 2) you are able to free enough money in your budget to aggressively pay off that debt.
2. Consolidate to a fixed loan and cut up all cards. Several online lenders will allow you to borrow money to pay off all your credit card debt. In return, you will pay them a fixed fee over a set time period. Usually, the rates are lower compared to your existing credit card.The advantage of this is you can see the end in sight. You know that say in 5 years, you will get rid of your debt.This only works if you have the discipline to cut up all your credit cards and have a budgeting system that enables you to spend within your means.
3. Develop a budget that aligns with your priorities. Contrary to public opinion, budgeting helps us achieve financial freedom. Find a way to lower your fixed bills. Give yourself an allowance to enjoy life today. And dedicate the rest towards paying off your credit card debt. You’ll need a system to help you stay within budget, and this will vary across different personalities.
4. Hire a life coach. There are times when although you have all the financial tools at your disposal, you can’t seem to get it together when it comes to overspending. It’s disillusioning when it’s the end of the month and yet again, you’re over budget.In this case, we may have to work through the mental blocks and emotions that keep us believing we need to spend to feel good. A spiritual life coach can help you work through persistent mental blocks with tools that bring healing and peace.

There is a way out of credit card debt. It’s a process, and it takes patience, discipline and often an accountability partner. But when you finally reach that goal, you will feel a lightness in your heart.

About Alvin Carlos, CFA, CFP®

Alvin Carlos, CFA, CFP® is passionate about helping middle class professionals make smarter financial decisions. He is the CEO of District Capital Management, a financial planning and investment management firm for the everyday people. Alvin is a CERTIFIED FINANCIAL PLANNER™ practitioner and has a Masters degree in International Relations from SAIS-Johns Hopkins. In his spare time, Alvin enjoys swing dancing and Ultimate Frisbee. He also volunteers for Catholic Charities’ new Financial Stability Network, which helps low-income folks with their finances.

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