Someone shared in a popular online financial planning community recently confessed that they have $100K in credit card debt and are looking for some advice.
The original poster (OP) said: “My wife and I have over the last 10 years made bad decisions and accumulated $101K in credit card debt. About $50K of that has been living expenses while I was in school. We have 3 kids and a house we love.”
Many people’s virtual jaws dropped, and they couldn’t believe anyone could have that much credit card debt. However, others were sympathetic and provided these helpful tips.
1. Make a Really Tight Budget
Making a tight budget is the first step in tracking and controlling spending. As a result, many recommended the You Need a Budget App (YNAB). This software uses the envelope method to force you to follow a budget.
The envelope method is a way to track your spending by making different budget categories (or envelopes) like groceries, school fees, mortgages, car loans, etc.
Initially, this method involved putting hard cash in physical envelopes, so you don’t use grocery money for a restaurant meal, for example. However, many budgeting apps (like YNAB) and websites offer this method electronically, with virtual envelopes.
2. Use the Debt Snowball Method for Psychological Reasons
The debt snowball method, or the “Dave Ramsey Method,” pays the smallest loan first because you finish paying it off fast, giving you that fantastic feeling of striking something off.
You do this by paying minimum amounts on all loans and using all extra money to pay off one loan at a time, in ascending order. Then, when the smallest loan is paid off, you add that amount to the now smallest loan, creating a “snowball” of repayment.
3. Use the Debt Avalanche Method for Lesser Interest Fees
In contrast to the snowball method, the avalanche method is the logically superior strategy. Instead of paying off the loan with the most diminutive principal, you pay off the most significant interest loan.
The rest is the same as the snowball method. You pay the minimum on all loans except the one you are concentrating on until it’s gone. This method might be better for credit card debts as CC interest rates are usually very high.
However, one argues not to take away from small accomplishments and that paying the smaller debts first boosts confidence quicker, motivating you to do more.
4. Start a Side Gig or Part-Time Job
One of the suggestions was to get a side hustle or part-time job and use all that extra money to pay off the credit card debt much quicker. One noted, “It will be difficult for a year or two, but in the long run, it will pay off, and you’ll be released from that $100k oppression.”
5. Cut Up Your Credit Cards Immediately
Many in the thread agreed that cutting up your credit cards is vital in getting out of debt and staying that way. You can even call the bank to make a settlement and disable your cards. Sometimes the most drastic steps work the best.
One elaborated, “Before even that, you should cut up those cards and never use them again. Not even after you pay them off. They are no longer available as a tool to you.
Don’t look at this as ‘how can I fix this problem so I can go back to living like normal’ because ‘normal’ isn’t working within your means. It is the same problem: ‘I need to go on a diet to go back to eating ice cream with every meal.’ It just doesn’t work that way.”
6. See a Financial Advisor
Someone suggested that you need to contact a nonprofit financial advisor. They can negotiate rates on credit cards. Additionally, they help people create long-term strategies for building wealth and managing risks.
7. Don’t Use Retirement Saving To Pay Your CC Debt
Several users noted that it’s terrible to drain your 401(k) or IRA accounts to pay credit card obligations because you need them for old age. Besides, you would need to pay ordinary income taxes on whatever you take out before age 60 (in the U.S.) One reiterated, “NEVER dig into your retirement accounts to pay off consumer debt.”
8. Find a Certified Nonprofit Credit Counselor
Many in the thread noted that you should find a Certified Non-profit Credit Counselor. These are different than your regular debt consolidation provider. They will work with you to make an aggressive repayment plan.
9. Get a Therapist
In addition to a financial advisor and a non-profit credit counselor, you should consider therapy. Many explained that something bigger was happening and that the original poster (OP) needed to get to the root of the problem. Otherwise, they’ll likely find themselves right back there even after getting out of debt.
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10. Cut Expenses to the Bone
Someone explained, “Been there twice, once at your debt level and once at considerably more. So the only practical plan is to cut your expenses to the bone and pay down the debt, the highest interest rate first.”
What do you think? Did Reddit get this right, or is something significant missing from this list? This article is inspired by the internet and does not necessarily reflect the views or opinions of Wealthy Nickel.
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