We paid off seven credit cards in 60 days totaling $14,488. We also paid $3180 cash for a new furnace, and paid cash for our 7th Anniversary trip. How did we pay off credit card debt fast? It’s been no easy task, that’s for sure. The debt didn’t just appear overnight. It’s an accumulation of multiple major f-ups including more than one car trade (with negative equity), expensive, unnecessary purchases, and just plain living beyond our means. We’ve paid our fair share of stupid tax, and we’re done.
We’ve been trying to pay off debt for quite some time, but the past year I really stopped focusing on it so hard because I was discouraged and felt we weren’t getting anywhere! I finally opened my eyes and realized we were actually digging a deeper hole, and we needed to stop the overspending and focus on the task at hand. So when we realized we were getting a sizable income tax refund and bonuses and commissions, we decided to start putting together a plan to pay off as much as we could with this large windfall.
The Debt Snowball Plan
If you’ve ever heard of Dave Ramsey, you’ve heard of the debt snowball. But for the newbies, let me explain. You list your current debts, smallest balance to largest balance, on a sheet of paper (or spreadsheet if you’re techy like that). List the creditor’s name, the balance, and the minimum payment required. If you’ve been paying extra to some of your debts, stop. I’ve spoken about how you can’t chase two rabbits at once, and this holds true with trying to pay off debt. From now on, all of your extra income (after paying all minimum payments and expenses for the month) will go towards your debt snowball.
Your debt snowball should look something like this:
Bank of America Credit Card- $700 Balance $25 Minimum Payment
Chase Credit Card- $1100 Balance. $40 Minimum Payment
Honda Finance- $18000 Balance. $430 Minimum Payment
Totals: $19,900 Balance. $495/Month Minimum Payment Total
So let’s assume you have $200 per month left over after paying for all of your expenses and obligations for the month. That $200 will go towards your lowest balance. Forget about the interest rates for a minute. The goal is to pay down as much as you can as fast as you can. So instead of paying $25 minimum payment to Bank of America, you’ll pay $225 towards the Bank of America credit card, and each month you’ll adjust that based on extra income or extra expenses. The number may go up or down depending on your specific situation.
I used to obsess over the budget, planning for the future but feeling defeated anytime something came up and we weren’t able to put the extra money towards our debt. Now I take it one paycheck at a time. That’s all we can do! There is nothing favorable about agonizing over your debt. If you don’t like it, you have to do something about it. Stop talking about it. Stop overthinking it. And just pay credit card debt off fast….as fast as you can!
Stop Blowing Your Income Tax Refund
Last year we finally sold our house in Georgia after having to rent it for two years post moving to Illinois. This year’s income tax refund was really good. It happened to be our year to claim my oldest daughter, so everything aligned, and we actually received the largest refund to date. It doesn’t happen most years for us, and I’d prefer to receive larger paychecks instead of giving an interest-free loan to Uncle Sam. This year we’ve adjusted our withholding, so hopefully we won’t overpay in taxes and will instead receive more take home pay each month.
In years past, we’ve used our tax refund money to pay off a couple of smaller debts and fund a larger purchase of some sort (usually electronics….why do we get sucked in to Best Buy?!). This year every last dime of our tax refund was used to pay off credit card debt fast.
Commissions and/or Bonuses
Any extra income, such as commissions and/or bonuses, if not allocated towards regular bills, should be put towards the debt snowball. Having lived as a one income family for the past 3 years, my husband and I have become accustomed to frugal budgeting. So when I became a licensed Realtor® in Illinois, we decided that all of my real estate commissions would be used to pay off credit cards. It can be difficult to budget with irregular income, but as long as we’ve got at least one stable, steady paycheck (my husband’s), we can allocate everything I bring in towards debt. So far it’s working very well.
My husband receives bonuses at his job for performance-related activity. All of his bonus money is also going towards the debt. I realize I’m getting a bit repetitive at this point, but you have to know that we’re prepared and willing to put everything we can towards this goal of debt freedom. We’re willing to do this even if that means sacrificing our “hard earned” bonuses and commissions for the greater good.
It wasn’t easy taking nearly $15,000 in extra income and paying it all towards credit card debt. In fact, it was quite painful but not in the way you’d think. After failing to pay off the debt for years, we’ve finally become sick and tired of being sick and tired….for real. We’ve still got some debt to go, but we’ve knocked out half of our unsecured debt. And that feeling surpasses all of the pain that comes as a result of those financial f-ups. If you have an unexpected windfall, consider using all of it to pay off credit card debt fast. You’ll feel an immediate sense of relief and peace. Don’t forget the missing piece to financial peace…closing paid off accounts. I’ll talk more on that tomorrow!