I love success stories, and so when I heard that another personal finance blogger has finally squelched her debt load, I had to share her story here. She has announced that she’s eradicated her credit card debt and finally has a $0.00 balance on her card accounts. That’s awesome, especially if you realize what a feat it is, because she had a balance of close to $40,000 to start with.
It took her around 3 years to make the debt disappear by implementing many strategies. This shows that if you’re really serious about getting rid of your debt, making the pledge to deal with it aggressively does work and can be the fastest way out of your financial situation. Some days ago, we published the story of how another individual was able to avoid bankruptcy; the cornerstone for this success is determination and commitment, in my opinion. Here are some debt elimination tips that I’ve found to be very effective throughout the years:
Pay Off Credit Card Debt: 8 Tips To Plan Your Debt Elimination Program
1. Know that you can do it yourself.
It’s important to know that even if you have accumulated a lot of debt, it’s still possible to succeed with eventually eliminating it once you take steps to actively manage it. The stories of many debt bloggers are a testament to how it can be done. It may help to use a free budgeting tool like Mint.com or Wesabe. There are tons of free web budgeting tools available these days that you can use.
If you’re more comfortable with desktop budgeting software, then there’s YNAB (You Need A Budget), which aims to get your debt and expenses under control. It’s actually much better rated than most other popular software applications in the market (check Amazon reviews); you can read more details about this product in my YNAB personal budget software review.
Now if you find that despite your efforts, your financial situation continues to weigh heavily on you and you find yourself overwhelmed, it would be a good idea to seek help and support elsewhere. There are a lot of resources out there that can help, such as Debtors Anonymous.
2. Set goals.
Making a promise to ourselves to deal with our debt is one thing, but we need to do something that will make the commitment concrete. Setting a date for when we expect to reach our goals will give us a roadmap against which to measure our progress. Goal setting is a great tool to ensure that we keep ourselves focused and headed in the right direction as we tackle our debt reduction program.
3. Create a debt elimination plan.
The quickest way out of debt is to stop incurring more of it while simultaneously paying off the loans you already have as aggressively as possible. While this may seem tough to do, you can use some strategies to help you out. Debt consolidation or refinancing may be solutions in some cases (but beware how this may affect your credit score), while a few people I know (including myself) have addressed their debt successfully by using balance transfer credit cards.
Transferring your debt from a high interest rate card to lower interest cards will speed up the debt reduction process, but it’s imperative that you weigh the costs of doing this. You’ll be paying less interest with a balance transfer, but applying for a new card has a short term effect on your credit score and can come with a balance transfer fee. You’ll also need to pay special attention to the rate changes after the promotional rates expire. In the past, I’ve been successful with eliminating debt by using such cards, but I had to make the commitment of paying off my debt during the 0% introductory rate period.
4. Prioritize paying off your debt as your primary financial goal.
A lot of people who’ve been able to banish their debt have made sure that they stick to their priorities. These people have managed to avoid temptations that entice them to part with their money. In my case, after I finally retired my debt, I vowed never to carry a credit card balance going forward. Now I pay off my balance in full each month.
Before I buy anything, I ensure that it’s something that I’ll be able to pay for by the end of the month, and if not, I simply avoid making the purchase. As for unexpected expenses, I keep an emergency fund in a high yield savings vehicle to avoid having to use my credit card for such emergencies.
5. Keep your eye on your track record.
When you embark on a debt elimination program, it’s a good idea to keep track of how your credit is doing. In fact, it’s wise to get a snapshot of your credit standing before, during and after you’ve worked on reducing your debt, in order to chart your financial progress. Tracking your credit score is one way to measure the success of your debt and credit management efforts.
6. Celebrate your victories.
Just like with trying to lose weight (which I’m still trying to do…), being way too restrictive about dealing with debt can end up backfiring when we end up “rebelling” over our self-imposed restrictions. How many of us have experienced falling off the bandwagon on occasion because of tough — sometimes unrealistic — rules that we impose on ourselves? Give yourself a break once in a while by treating yourself to simpler rewards when you reach certain milestones in your plan or debt reduction schedule.
7. Increase your income.
I think that it’s not enough to cut back. It’s best to apply a two-pronged strategy for living below your means: spend less but also try to earn more. If you can find ways to increase income, you’ll have more ammunition to throw at your debt balance; there are many ways to earn extra income (start a side business, get a second job, learn how to invest well), which combined with a strong savings strategy, can accelerate your debt repayment.
8. Have accountability.
One of the most effective strategies that some people have employed is to make themselves accountable while trying to work on their debt. By sharing their stories with others through blogs or in forums, they are able to receive lots of encouragement and support, thereby giving themselves the psychological boost to handle their financial issues. There’s strength in numbers, and I believe that a blog or a similar platform helps build a supportive community that can cheer you on and provide you with advice, ideas and even guidance to keep you focused.
For those who aren’t interested in being accountable in this manner, you can still help yourself by simply keeping a journal or diary that will track your progress over time. By keeping tabs on your progress and jotting down notes and ideas about your financial activities, it’ll be easier for you to measure and assess your status. All this can only help you stay on track.
9. Pay more than the minimum.
The lesson here is this: put as much money as you can afford towards expensive debt or anything that charges a high interest rate. The cost of debt can be humongous. By keeping a tight rein on the use of your card, you won’t allow your debt to run away from you. It’s particularly important to avoid feeding your debt balance because as it grows, the harder it is to control and manage. So before you use your card, already set some parameters. If you can’t afford to pay the whole balance off, try your best to pay more than the minimum in order to bring down your principal as quickly as you can.
One Amazing Success Story
As for that personal finance blogger who wiped out her debt in 3 years? It’s one of many success stories I’ve found inspiring. Congratulations to Tricia! She’s blogged away a total debt of $37,614 all in all in a little over 3 years (38 months to be exact). Eliminating a huge debt load may seem overwhelming at first, but you can do it!
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{ 31 comments… read them below or add one }
While I agree with your helpful tips in some cases it may not be possible to increase one’s income. My advice in those cases would be to track your spending and look at where you are wasting your money. For example do you really need to buy coffee one hour after leaving home where had a cup? I am sure that you can get one at the office.
Another way to reduce waste is to read the newspaper online or in the library rather than buy one. Too often people buy newspapers, read only a part of it and discard the rest. Why not go to the library, borrow a colleague’s or even better form a partnership with a colleague to buy the newspaper on alternative days of the week (not weekends).
Finding these areas where you can re-purpose this money toward debt reduction can go a long way to boosting your confidence if you know that the possibility of earning extra cash is beyond your immediate grasp.
Congratulations to Tricia on a great accomplishment!
One thing that looks weird here is having #7 as a tip to pay off credit-card debt. “Paying more than the minimum” doesn’t seem like a tip, it seems like an absolute must. Is it even possible to pay off a credit card without paying more than the minimum?
I mean I thought this was the very nature of credit card debt, this is why it exists in the first place. Just seems weird having it as a tip.
I find Tricia’s story really inspirational. Most of my debt is all student loans but I really hope to pay it all off similar to what she has done!
I have been making pretty good progress lately and hope that I can get it done as well as she did.
Thanks for the news, I haven’t checked her site in a while.
First of all I am glad that you included point number 5. Most people think that they can save their way out of debt (and trouble) and even though it is possible the faster way is to increase the amount of money you make. Making more money is not hard at all but it will require a shift in your mental attitude (and that can be the tricky part).
Secondly every plan will need to include ACTION. You can spend all your life making plans and setting up goals but if you’re not taking action towards those goals you have just wasted your time.
/Mikael
Yes, the combination of “earning more and spending less” is pretty powerful. Imagine doubling the chances of reducing your debt by applying both financial strategies? I agree that earning more can be tough to do for many people, most especially in a difficult economic environment as we have now. It’s tough enough to have and keep one job, much more two! A lot of us with families also find that our time is extremely limited, and unfortunately, chasing down income sources is just not feasible because of these reasons.
In such a situation, then cutting back may be the only way to reduce debt. Making those sacrifices will be key to eradicate the debt slowly but surely. Tricia was able to work out both the “earn more and spend less” concept to her advantage, so she was able to accelerate her debt reduction schedule to get to a zero balance in 3 years’ time. Either way you look at it, it’s an awesome feat.
The most common mistake people do is pay just the minimum. Someone I know learned the hard way — she kept paying the minimum for her card and she eventually became so in debt the best thing she could probably do is declare bankruptcy.
I agree with the steps you mentioned, I am currently following them. I really like the blog idea. It’s like a diet, when you write down everything you eat you think twice before you eat it AND you know what and how much you ate working toward your goal. I would also add that the person save ALL receipts, categorize them and calculate them weekly. This will tell you exactly where your money goes and will make you think before you spend.
Rewarding yourself after a milestone is a wonderful feeling. It allows you to be proud of your accomplishments and gives you the encouragement to go even further. Thank goodness for goals and rewards.
One thing that a lot of the “eliminating credit card debts tips” lists tend to omit is that you should call your credit card company. Especially when your rates are high or have recently jumped up. Fees are also easy to get them credited if there is an explanation or reasoning. Credit card companies while they want to make as much money as possible would rather have a better chance of getting the current balance than lots of future money.
Dropping the interest rates lower, offering special promotional rates, balance transfers, or other term modifications can cause the most drastic difference in the repayment process.
I have personally had 4-6 fees removed/reduced. I have been able to have my APR reduced EVERY SINGLE TIME that I have ever called in and requested it. It may not always be a big change 24% back to 11.99 or 18% to 5.99%, but even just dropping the apr 1 or 2% can have a decent impact.
Just be careful about the transaction fee for balance transfers. Based on the 3% fee and the term of the transfer it may or may not have a positive impact.
Working with a debt settlement company is the only way I can see getting out of debt.
Freedom,
I disagree completely. You can get out of debt when you put your mind to it, and you don’t necessarily need anyone to tell you how to do so.
I wish I had your advice a long time ago. I am so far in debt now that it’s stupid …. and I’m still a student
I agree with Silicon. It is definitely possible to reduce debt on your own. It just takes discipline in most cases. However, in some cases what Freedom says is true. Some people need help, because of various reasons. I have a friend who once told me he bought a life insurance policy so he could save money. I informed him that Life Insurance is not really savings and he said that if he didn’t have the policy there is no way he could put money away for the future. He is just a person who likes to spend, but at least he recognizes that and is dealing with it in his own way.
I have to agree with all of your advice. It’s truly important that individuals start to take ownership in the amount of debt they have accumulated. These individuals need to make paying off their debt number one priority, whether that be on their own or with the help of a debt settlement company.
Keep the success stories coming!
- Mary
The quickest way to pay down credit card debt is going to take persistence and commitment. Perhaps the best way to talk about paying down the credit card balance is to take a look at how you ended up with the debt you have.
Very insightful.
I like 1,2 and 6 best.
Sure, first thing is accepting to pay.
Start budgeting so that you can stop using credit cards, the next is to figure out how much you allocate to paying them off each month.
I am in 10k credit card debt at 23. I do have the money to pay the debt right off, but I will be drained. However the interest rate on the credit card is way higher than the interest I am earning on my money. Anyways since me and my girlfriend moved in with each other, we had to buy everything new and she wants to travel more now. This is all good but, now that I am realizing that this debt is holding me back from buying a real house or even opening my own resturant, I am making cut backs.
So, I wrote down on a piece of paper my monthly bills, my SUV 500/month, gas 250/month, insurance, cell phone (w. data packagee), time warner cable/internet (With all channels and highest speed internet), netflix, gas and electric, water and my impulses on lunches at work when I already bring a lunch, and last but not least my impulse purchases. Granted I like to live in a nice house, but I’m begging to ask myself, will I really care about this item next week. The majority of the stuff is instant gratification. I need to over come that. I say on average, 400/month on impulse spending. Lunches, $10/3 days a week, NO more data package for Blackberry, I dont need that anymore seeing how I switched jobs, cut the cable bill and internet, not punching the gas pedal anymore, be conservative with running errands, be conservative with the electric and gas and water.
My rent there is nothing I can do, but 1100/month for rent when homes are less than that is pretty dumb. I have the credit to get a house, so right now I am not building any equity. If I do these cutbacks I know that I can pay 10k off by the end of the year without touching my house money. All in all, I believe I can save 500/month cutting luxuries and wasteful spending. No more data package, -30/month, cable and internet – 60/month, netflix -10/month, gas electric save 20/month, gas fill up aim for once a week save 50, allow only 100 impulse -300, no lunches during work week -100/month. That there equals $570/month I can be putting towards my CC debt.
Once that is finished, I will work on down grading my car and put the difference into some sort of investment. Also not to mention, I wash my own car, cut my own hair, reduce the amount of laundry, free car maintenance, refill my water bottle. These little acts help. I figure in 12 months, the only payment I want is my house (so I can afford a better one) and the utilities. Can we all make these cutbacks or am I going too far with saving? Should we be treating ourselves more often or should we suck it up for a year or so?
@Johnny,
I think you can never save too much — if it is comfortable enough for you to cut back as much as you have, then do it. If it’s become too difficult to keep with a savings plan as “extreme” as you describe it to be, then treating yourself on occasion is alright as well. I’ve gone without on some of my favorite things to do for long periods of time when I decided to prioritize on certain expenses. There was a time I only had enough of a budget to cover the necessary expenses, so I ended up not going on vacation for years. I haven’t gone to the movies in years as well. I don’t miss these activities at all, actually, and I’ve been able to meet my savings goals in the meantime.
Soon, I’ll be able to treat myself to a vacation, and it will be very fulfilling when that happens!
You are right. These leisure activities are needed because you and the spouse get bored. The best tool for saving money is convince your spouse is to sacrifice with you, then your debt goals will succeed. This is my problem, many times my girlfriend gets bored and always wants to do something, go to target, kohls, go out to eat, movies and so on.
Or every night when I get home from work, she asks what do you want to do tonight. I look at the clock and it’s 7:30PM. She is willing to suck as much money as possible with those few hours left in the day. She comes from a family who has lived paycheck to paycheck, so she thinks it is fine to live this way and her debt doesn’t bother her. Her goals are different.
I guess my point is if you can convince your spouse of what your goals are and they are understanding, then that is extra money saved as well. Although at the same time, try not to make it too boring for them.
I have a question about “Prioritize paying off your debt as your primary financial goal”.
What method was used? Did you pay the highest balance first or did you pay the highest APR first?
those with credit card debt might be better off getting a secured card.
I think you can never save too much as well. Life happens and having money in savings is always good.
Janie Out of Debt
Obviously a lot more Americans should read this post considering that an average household owes about $9000 and the current credit card debt is $960 billions only in the States!
It’s always possible to up your income, even if it seems to be by pointless amounts.
Take this month as an example from me.
5 Minutes completing a survey: £5 Amazon gift voucher.
30 Minutes adding AdSense to my blog: £13 (so far).
Opening an ING Savings Account: £25 bonus.
Avoiding Supermarket tricks: £50 (not spent).
Cutting back cell phone package to just what I use: £25 (not spent)
Overtime at work: £450.
If you add up the ‘extra’ (not including overtime), that’s £43 this month I wouldn’t otherwise have had. Keep that up over a year, that’s over £500! If you take all of the above, that’s £568 this month alone. Assume I can do this for say 6 months out of every 12, that’s an additional £3,408 in my bank!
Small changes make a BIG difference.
I am really impressed that that lady paid off around 40000. This is quite good. And this article is really marvelous. The tips are really beneficial to many people. I totally agree that by planning, with some extra income and by paying little more amount than minimum, any one can get rid of their debt problem. And the point of money transfer is also good to pay higher debt rate. Very insightful.
This is a great article. The problem is getting the population to follow. I think some people don’t want to know how much or how little money they have so they just spend without paying attention.
Just started a blog on this more to come soon
Thank you for some valuable tips. Once you are deep in debt it does seem like you don’t know where to turn to for a solution. But as much as you feel down about your debt, you have to get control of it and take steps to help eliminate it. I myself started a blog in order to motivate myself, keep track of my progress and tackle my debt head on. I hope, I too, can succeed through blogging.
Thanks for the helpful tips. I will try and use them in reducing my credit card debt. Great advice. I’ll let ya know how I do!
Hi There everyone. I know credit card debt can be worrisome — I was there, but I did something about it. Even an extra $500 a month was a god send. I started a business which helped me earn some extra money.