Simply Debt Free

The average American credit card debt is over $5,100. While it may not seem like it, this balance is manageable. Within three years it can easily be paid off provided that new charges are not added to the debt. That's the most difficult part of the plan. Take this not-so-new and not-so-difficult plan of action towards eliminating your credit card debt.

The Habit

No plan will work if you continue to build up the balance on your cards. First, focus on the habit of not using your credit cards. Pretend you no longer have them. Pay in cash instead and do some evaluation of needs versus wants. While my house needs new windows throughout, we created a plan to replace a few in spring and a few more in fall. Within two years my entire house will have new windows and I will have added $0 to my credit balance. I certainly could justify installing all of the windows now; they're old and somewhat drafty. However, I can pull down the storm windows for one more winter. It's a good feeling to write the check and know that I don't owe on the new set of windows. Instead, I can start to save for my next set without paying extra interest charges.

Organize the Plan

Once you have established the habit of not using the credit cards, look at what you owe. Inventory all of the accounts, their balances, and their interest rates. Now, there are two ways to tackle this inventory.

1. If one card carries a small debt, try to pay it off in one or two months. This isn't your most profitable plan, but sometimes having the debt spread out is confusing and overwhelming. By eliminating a few smaller bills you can now easily focus on the larger ones.
2. The most profitable plan is to pay off one debt at a time, starting with the one with the highest interest rate. While it may look like chipping at a mountain with an ice pick, it is the best choice. Pay all the minimum fees on all of your cards, and then pay extra towards the highest interest card. A good rule of thumb would be to pay an extra $100-$200 dollars each month.

With this plan all of the cards are moving towards the goal of debt free, but the most expensive one is moving at a faster rate. Whenever extra money comes your way from overtime, bonuses, or other incomes apply that extra money directly to your month's payment plus the extra $100 you intended to pay. When it gets frustrating, use that frustration to motivate yourself further. When you're debt free all of your money is yours. Keep in mind that the end is in sight in a few years.

Amazingly, the first credit cards were issued in 1950 and there were only 200 of them. That's a far cry from the 1 billion credit cards found in America today.