How to get out of (credit card) debt

Congratulations.  You're probably reading this because you realized you had an issue with debt and googled the phrase (or I kept sending you the link until you clicked on it).  Either way, you want to do something about it.  And much like the platitudes they spew at your AA meetings, the first step to recovery is admitting there's a problem.

So let's get into it.  I'm going to assume you're an Average American, and have a mortgage, a car loan, student debt and half a dozen credit cards, all of which have varying interest rates which you don't want to think about.

Pictured: the average American.  We'll call him Joe

You'll need to get a list of your debts that contains the amount owed, the minimum payments and what the interest rate is.  I'll use an example.  Here are a list of debts that Joe has:

Mortgage: 200k, 1200, 3.5%

Car:          20k, 300, 6%

Capital One: 4000, 70, 22%

Discover:   2000, 30, 17%

Amazon: 5000, 50, 0% until May of next year, when it becomes 26%

Personal loan from the bank to buy a Rascal scooter: 700, 20, 12%

Loan from Bob: 4000, N/A, 0%

You'll notice the last one is an interest-free loan that Joe got from Bob.  Bob hasn't set a monthly payment and isn't charging Joe interest and has told him to pay him back "whenever."  Make no mistake; Bob is generous, and Bob is patient, but Joe does need to pay him back.

So in your case, here's the plan: 

1) Make a list

2) See how much money you have left over every month after paying for the basics; mortgage, car, utilities, gas, groceries, etc.  For this scenario, let's pretend you have $500 you can use toward paying for your credit cards and other loans.  The minimum payments you MUST make in order not to default are $170 (70 + 30+ 50+ 20), which means you have $330 you can use to get out of debt faster.  Let's also make a minimum payment to Bob, say $30 a month.  That leaves $300 extra.

3) Put the entirety of that $300 toward the highest interest loan first.  In this case, the highest is the Capital One card, at 22%.  Now this is important.  I know it would be nice to pay off the lowest balance first, such as the bank loan since it's only $700, but the longer you neglect the higher interest rates, the more interest will accumulate. So you'll be putting $370 towards the Capital one card every month until it's paid off ($70 minimum plus the extra 300 you're using to get out of debt faster)

4) Once that card is paid off, use the extra $370 to pay down the next highest interest.  And so on.

5) Now let's pretend it's the following May, and that 0% interest Amazon card starts charging you 26%.  In this case you'll start moving all extra money towards that one.  Even if you're not done paying off the previous highest interest card.  But remember to keep making minimum payments on everything else.

Alternatively, you could take out a loan that consolidates all of your credit card debts into one handy loan, but you'll have to calculate whether it's worth it.

And that's about it.  Good luck.  Email me if you have any questions.