How to Pay Off Credit Card Debt

Overwhelmed by credit card debt? Read the advice from Savvy Ladies founder Stacy Francis, CFP®, CDFA below and create your own roadmap to get out of it! Want to learn more about credit card debt management? Take a free debt management course here!

By Stacy Francis, CFP®, CDFA

I went for a run in the park this morning, with my favorite workout pal. She surprised me mid-run by asking whether it was really necessary to keep six months’ worth of income in an easily accessible emergency fund. Wouldn’t it make more sense to put her money in retirement accounts so that she could cash in on the tax benefits, and then do a cash advance from one of her credit cards if she got into trouble?

This got me thinking about credit cards, and how even though almost everyone uses them, few have a real perception of how they work. Below are three common myths about credit cards, starting with my running buddy’s, plus advice on paying off credit card debt and debt consolidation.

Credit Card Myths

  1. “Doing a cash advance from your credit card is like taking cash out of the ATM.” No. Rates and fees are sky high for this transaction. Avoid it.
  2. “In times when money supply is short, you can stick to the minimum payments on your credit card balances.” Again no. Not only will you waste horrendous amounts of money on interest, but paying the minimum balance only will drag down your credit score.
  3. “It’s OK to take your cards to the limits.” Third time no. This is OK only if you don’t care about your credit score, and don’t mind spending your money on interest instead of investing it – or enjoying it.


4 Rules for Paying Off Credit Cards

In her highly praised book Debt-Proof Living, Mary Hunt shares four rules for getting out of debt. According to Mary, shrinking your debt is not all that different from shrinking your waist, so just like your diet, your action plan needs to be simple and specific. It is also crucial that you can measure your progress, and that you have a specific completion date. All payment plans work in theory – but they will only make a difference for you if you can stick to them. So be realistic when crafting it, and your chances for success are much bigger. Then make sure you work these four rules into the formula.

    1. There can be no more debt. You are never going to be debt free if you keep borrowing. It’s a bit like binge eating while on a diet – except you can’t make yourself sick afterwards.
    2. Pay the same amount every month. Over time, as your balances and minimum payments start to look smaller, you will be tempted to slow down and make smaller payments. Don’t. The faster you pay it off, the less finance charges you have to pay, and the smaller number of dollars will stand between you and financial freedom!
    3. List your balances according to size and payback time.
    4. Whenever you’ve paid off one balance, add the size of the payment you used to make toward it to the next one, and really get the ball rolling.

Paying off debt is no more fun than being on a diet, but if you keep envisioning your goal and implementing these four steps, you will be out of your crunch before you know it.

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Credit Card Overwhelmed? Consider Debt Consolidation

If your credit cards are driving you insane, it’s worth considering debt consolidation. There are numerous options for those looking to save time, hassle and frustration by combining all their monthly payments into one. Below are a few:

  1. Credit card transfers. This can be an excellent way to go, if – and only if – you are certain that you’ll be able to pay off your balance before the low introductory interest period is over. BEWARE: Watch out as rolling your debt from one card to another can hurt your credit scores.
  2. Home equity. For those lucky (or unlucky, depending on how you view things) enough to own a house, this can be a great way to lower your interest and get better payback – and overall – terms for the money you owe. BEWARE: I know too many people who have innocently moved their credit card debt onto their home equity line of credit, only to rack up new credit card debt only months later.
  3. Loans against retirement funds or life insurance policies. Most employers allow this for 401(k) plans, and most insurance companies don’t even require that you pay back the loan – you can deduct the balance from the benefits paid to your beneficiaries. While the latter may not be too happy, this is an option and worthy of a mention. BEWARE: Taking money from a 401 K can impact your retirement security. Not to mention many loans are due in full 60-90 days after you leave or are fired from the company.
  4. Nonprofit credit counseling agencies. The employees of these agencies do debt consolidation for a living. They negotiate with credit card companies daily, and will be able to score you the smallest possible fees and most favorable interest rates. BEWARE: Not all credit counseling agencies are the same. Do your homework and make sure that you are working with a reputable company.

These are just a few examples of ways to get control over your debt situation – simple ways to commit to a plan that both eliminates your debt and takes your mind off it. Always remember that many people have had this problem before you – and many have gotten out of it.

Escaping the Financing Trap

Someone told me the other day that whenever an American scores a 5% raise, he or she immediately ups spending with 10%. Crazy, you may say, but the thing is, our society is built around exactly this sort of behavior. It doesn’t actually take money to spend money – in the short term, anyway. Sales people, banks, and other types of institutions are tossing money at us in a manner much similar to the way guests toss confetti at the bride and groom at weddings. Chances are, you’ve heard something along the lines of “0% down”, “no interest until 2010” or “cash back” within the past hour. But while these sorts of deals may sound like dreams coming true, in reality, many people have had their finances ruined by them.


Because the sales reps aren’t just giving you that bed, car, flat screen TV or whatever it is you’re shopping for, for free. Sooner or later, the time will come for you to pay for it, and then you are stuck with your current bills (rent, groceries, gas, insurance, etc, etc) plus the bills you didn’t pay years ago. And though it is easy to think “no problem, three years from now, I’m going to make a killing anyway”, unless you are Nostradamus and can predict the future, chances are, you may not. Your company may go belly up, a family member may have an accident and end up hospitalized, or you may get divorced. The guy at my local Postal Annex has this problem. In order to keep up with his bills, he works from 9 to 6 there, and then goes straight to his second job at a warehouse, where he stays until midnight.

I’m not saying you should never finance anything, because there will be times when this is your only option. But beware of the risks – and plan ahead for the day when you will have to pay for your merchandise.

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