How to Get Out of Credit Card Debt

The local paper in Colorado Springs (Gazette, February 16, 2013) reports that the Colorado Springs/Pueblo area has the fifth highest average credit card balance in the nation. This is not a position we should be proud of, and as a Financial Advisor I’m afraid that some of our readers are contributing to these statistics. Let’s fix this problem of credit card debt.

How do you know if you have a credit card problem? Believe me, 90% of those who have problems with debt know it. For the other 10%, you have a credit card problem if you can’t pay off your credit cards at the end of the month.

Job one is to acknowledge the problem and resolve to fix it. This is much harder than it sounds. Several years ago I did a segment on Dave and his success in getting out from under his $65,000 debt. His advice: “Ask for help! Find a way to track income and expenses. Focus on your life purpose.” We need to change the way we run our finances, and that change will be difficult but absolutely necessary.

The root cause of the problem for most is overspending. A budget and ability to track expenses are essential. Put the credit card away and do not use it. I tell clients to place the credit card in a bowl of water and park it in the freezer. One client asked if that might ruin the credit card. Between you and me, I don’t care if the credit card is rendered useless, in my book anything that will prevent a credit card from being used forever is a really good thing. Only use money you already have to buy things; use cash, checks, cash cards, debit cards – whatever, but don’t buy anything with a credit card.

Once your spending is under control, it is time to put together a written debt repayment plan. You might want to contact the credit card company to see if you can get the interest rate decreased; you might want to contact the National Foundation for Credit Counseling (800 388-2227) for help. Go to a bare bones budget and use all the saved money to pay down the card. Start by paying off the card with the highest interest rate or pay off the card with the smallest balance so you are able to reach a milestone and celebrate. Keep going until all debt is paid, and understand it may take years.

Once all the credit card debt is paid off, you must decide whether you will now use one card (and only one card) and pay it off monthly or keep the cards in the freezer and use other methods to buy things. I have a dream that when my 7-month old grandson is out of college and starting his first job that there will be no such things as a credit card. It could happen with all these alternative ways to pay – smart phones, PayPal, electronic transfers, no-fee cash cards. Until then, don’t abuse a credit card!
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