When It Seems Hopeless: How To Pay Off Credit Card Debt

When considering many of the inventions that we use regularly, the credit card is a relatively new idea; the first credit card that could be used at more than one merchant was issued in 1950. Frank McNamara started the “Diner's Club” credit card company with about 200 card holders, and it was also the start of the vicious cycle many credit card users fall victim to: charging purchases when you don't have the cash to buy them, and then struggling to keep up with the monthly payments because of high interest rates and spending outside of your means.

The average credit card debt held by the typical American is over $8500. As any credit card holder knows, the interest on a credit card causes you to pay more than double the amount you've spent on the card, if you only send the minimum payment and never make any late payments. That number increases when you are late sending payments, thanks to the addition of “late fees”.

Some people attempt to play “credit roulette” to pay down their credit. This is a game where you take out a loan to pay off a credit card, or you transfer credit card debt from one card to another, hoping to take advantage of a lower interest rate or promotional offer. While this will work for awhile, eventually you will have difficulty getting new offers and places to transfer the debt to, or you'll miss the fine print on one of the offers and end up paying more interest than you thought, defeating the purpose of the balance transfer.

So how can the average individual pay off their credit card debt without bankruptcy, without joining a credit counseling service (some credit counseling services are very helpful, but beware of others who charge high fees to combine your credit card debt and end up costing you more money than you would have paid on your own!) and without having to get second and third jobs?

One of the best techniques for paying off credit card debt (and other debts as well, for that matter) is the snowball technique. In the same way that a snowball gathers more snow and grows as it rolls down a hill, your payments to your creditors will grow as you pay off one debt and then apply that payment to your next creditor.

Make a list of each of your creditors, including their minimum monthly payment, the total amount owed, and the interest rate you are being charged. The debt that has the least amount owed will be the first creditor you will concentrate on paying off. You'll pay the minimum amount owed on each of your accounts except for that one, sending as much as you can to this creditor to pay it off.

For example, let's say you have three credit cards. Credit card one has $7,000 owed at 20% interest, and a minimum monthly payment of $80, credit card two has $5,000 owed at 18% interest and a minimum monthly payment of $45, and credit card three has $2500 owed at 21% interest with a minimum monthly payment of $30. You're going to send minimum payments to credit card's one and two, and send as much as you can afford to credit card three, until it is completely paid off. Let's say you can afford to send $100 to credit card three. Once you've paid the account off, write the company and cancel the account. This removes it as ”available credit” on your credit report and helps your credit score. So now you have an additional $100 a month. You'll now concentrate on credit card two, which is now your lowest debt, now slightly less than $5,000. The payment you'll send to credit card two will be $145, since you had already been sending the minimum amount of $45, and you're adding the payment from the first card that you paid off. The snowball has gathered more snow! Now, once you've paid off your second credit card, you will have an additional $145 per month to send to your last credit card, to which you had already been sending $80. The new payment to credit card one is $225 per month- almost three times the minimum amount due.

Using the snowball technique is not an overnight solution, but you most likely didn't obtain all of this debt in one night, either! It is an easy method to apply, and will get you out of debt much faster and at less interest than if you just sent the minimum to each card every month, and works much more effectively than trying to send an additional few dollars to each account every month.