Credit card debt can feel overwhelming, but many people have faced it head-on and won. Take a couple from my podcast, who had $4,600 in debt but were still spending $600 a month on GrubHub. Or Donell and Monique from my Netflix show, How to Get Rich, who wiped out $20,000 in credit card debt using the strategies we’ll discuss today.
Find out how much you owe
You’d be surprised how many people pay off their credit cards without ever truly knowing the extent of their debt. Credit card companies love this because it means you’re essentially on autopilot, sending them money without a second thought.
But it’s time to take back control. To find out just how much you owe, you need to log in to your credit card account online. Then, create a straightforward spreadsheet listing each card, the total debt balance for each, the annual percentage rate (APR; a.k.a. how much interest you’re being charged on your debt per year), and the minimum monthly payment, for example:
| Credit Card | Total Amount of Debt | APR | Minimum Monthly Payment |
|---|---|---|---|
|
Amex |
$4,900 |
19% |
$250 |
This step alone is a game-changer. Why? Because it sheds light on your financial reality and sets the stage for the debt-busting strategies we’re about to dive into.
Decide what to pay off first
Not all debts are created equal. Different cards charge you different interest rates, which can affect what you decide to pay off first.
One method is to pay off the minimums on all cards, but pay more money to the card with the highest APR, because it costs you the most. Or use the Dave Ramsey Snowball method, you pay the minimums on all cards, but pay more money to the card with the lowest balance first — the one that will allow you to pay it off first.
This is a source of fierce debate in credit card circles. Technically, the Snowball method isn’t necessarily the most efficient approach, because the card with the lowest balance doesn’t necessarily have the highest APR. But on a psychological level, it’s enormously rewarding to see one credit card paid off, which in turn can motivate you to pay off others more quickly.
My expert tip: don’t spend more than five minutes deciding. Just pick one method and do it. The goal is not to optimize your payoff method, but to get started paying off your debt.
Negotiate your APR down
Let’s talk about putting money back where it belongs: in your pocket. You might not know this, but you can actually negotiate for a better interest rate on your credit cards.
It’s a game-changing, 5 minute process that could save you thousands in interest.
Making that call can feel a bit intimidating, but I’ve got your back. I’ve created a simple word-for-word script to successfully negotiate better interest rates… and I’m giving it to you for FREE! Simply rinse and repeat with all your credit cards.
YOU: “Hi, I’m going to be paying off my credit card debt more aggressively beginning next week, and I’d like to lower my credit card’s interest rate.”
CC REP: “Uh, why?”
YOU: “I’ve decided to be more aggressive about paying off my debt, and that’s why I’d like to lower the interest rate I’m paying. Other cards are offering me rates at half what you’re offering. Can you lower my rate by 50% or only 40%?”
CC REP: “Hmmm … After reviewing your account, I’m afraid we can’t offer you a lower interest rate.”
YOU: “As I mentioned before, other credit cards are offering me 0% introductory rates for 12 months, as well as APRs that are half what you’re offering. I’ve been a customer for XX years and I’d prefer not to switch my balance over to a lower-interest card. Can you match the other credit card rates, or can you at least go any lower?”
CC REP: “I see … Hmm, let me pull something up here. Fortunately, the system is suddenly letting me offer you a reduced APR. That is effective immediately.”
3 mistakes to avoid when paying off your credit cards
Don’t overcomplicate your repayment strategy. To keep things simple and effective, here are some common mistakes to make sure you successfully pay off that credit card debt:
1. Making only the minimum payments
I can’t stress enough how this is one of the biggest mistakes you can make. If you’re only paying off the minimum, you’re throwing money down a black hole because interest rates pile up faster than you can pay them off.
Take Erik’s story from my podcast, for example. Growing up, his financial habits made him comfortable with getting by on the minimum. While Erik’s faith in his ability to “figure it out” is admirable, relying solely on minimum payments keeps you stuck in a cycle of debt:
[00:28:00] Ramit: Would you describe your family as poor?
[00:28:03] Erik: Yeah, growing up. And I had a job out of college that was a little bit feast or famine. When I had good months, I lived well.
[00:28:13] Ramit: What’d you do?
[00:28:14] Erik: Oh yeah. I would go out with my friends. I would eat wherever I wanted. I like nice things. So I’d buy a new pair of shoes or spend a pair of jeans, or when I had it, I would spend it, and then months I didn’t have it, I was like, I was okay with that too, because I just knew those months, I was eating ramen that month. I like ramen.
[00:28:36] Ramit: Are you okay to do feast or famine now?
[00:28:41] Erik: No, I’m not.
[00:28:44] Ramit: Are you seeing Andrea’s face, by the way?
[00:28:47] Erik: No, I wasn’t watching.
[00:28:48] Ramit: Andrea, what were you just doing when I asked that question?
[00:28:50] Andrea: Raising my eyebrows because I do think that Erik has a very high tolerance, I think an abnormally high tolerance for financial insecurity.
[00:29:08] Ramit: Would you agree, Erik?
[00:29:09] Erik: Yeah, absolutely. I just can’t foresee a scenario where we would wind up in a famine where we just wouldn’t have money to pay the bills, or something like that. I’m just not worried about that. No doubt we’ve had lots of times when things are tight and we’ve had seasons where we’ve lived on credit cards, but we’ve never missed a payment.
[00:29:32] Ramit: A minimum payment?
[00:29:34] Erik: Yeah, yeah.
[00:29:35] Ramit: Are you okay with that, Erik?
[00:29:36] Erik: There have been seasons where that was what we could do. And as long as we were doing that, I had a sense, you know what, it’s going to be all right. This tight time is not going to last forever. We’ll get through this. It’ll be fine.
[00:29:51] Ramit: How did you know when you were paying the minimums on your credit cards that it was going to be okay?
[00:30:00] Erik: It just always has been. I’ve always gotten through those times, and I’m a person of faith, so I have a trust, hopefully not a trust I want to take advantage of, but I have a trust that I think God’s going to provide for us. Honestly, my story is I feel like He has. That kind of faith or trust or just confidence in the future is something I don’t want to take advantage of.
[00:30:29] So I think I have to participate. I have to do the work. I have to have a goal. I have to take advantage of opportunities. I’ll always be able to find something and figure it out. That’s one of the things I’ve learned in our relationship. Not to say, although, it’s constantly in my mind.
[00:30:46] Ramit: Figure it out.
[00:30:47] Erik: Yeah, we’ll figure it out. It’ll be fine.
2. Keeping the same habits
The definition of insanity is doing the same thing over and over again and expecting different results. Well, that holds true for your financial habits too.
Take a look at your childhood, like Erik in the example above. What invisible money scripts do you have? You might feel that ‘things will always work out’ or that you need to ‘keep up with other people’ and buy all the newest things.
These beliefs about money are costing you. They affect how you speak, think and act about money… which means in order to break your bad habits, you need to change your mindset.
3. Don’t fall for quick fixes
You might have heard that balance transfers are a way to escape high-interest credit card debt. They can sound tempting, offering you a lifebuoy in the form of a lower APR for a few months. But credit card companies are like magicians when it comes to these offers. They’ll lure you in with the promise of saving money, only to hit you with a pile of confusing terms and conditions, and after a while you might be stuck in the very same situation you were in before with possibly MORE debt to pay off.
Balance transfers can work for some folks. However, I’m not exactly their number one fan. Sure, it might buy you some time, but it doesn’t change the fundamental problem. Consider Ron and Cristina’s situation from my podcast:
[00:07:22] Ron: Is it smart to do balance transfers from one credit card to another to get out of like the interest to a 0%, even though you have to pay a little bit to do it, or are giving money away at that point still?
[00:07:40] Ramit: It’s a good question. Balance transfers can be okay. They can save people a lot of money, but I will tell you that I often find people in credit card debt will do everything except making a plan to actually pay off their credit card debt. They use balance transfers as a gimmick.
[00:08:02] Ron: Mm-hmm.
[00:08:02] Ramit: Basically, how do I buy myself another 12 months. But what they don’t do, which is the most important thing, is they don’t look at their fixed costs, and go, okay, what are we eliminating? Okay. We’re going to cut $500 a month off, and it could be by, we’re going to eat out way less. We’re not going on vacation, etc., and I’m going to take all that money and automatically set it up to be transferred to my credit card bill every single month.
[00:08:34] It’s not a choice. It’s not chance. It’s math. It just happens automatically. So do the balance transfer. Don’t do the balance transfer. But what matters really is setting up an automated transfer every single month, aggressively paying off your credit card bill.
And that’s the truth with most of these so-called solutions: they’re just elaborate ways of reinventing the wheel. Whether it’s a balance transfer, dipping into your 401(k), or tapping into your home equity line of credit (HELOC), it just adds more layers of complexity to your financial life. And trust me, when it comes to getting out of debt, simpler is better.
It’s one of the best things I’ve published (and 100% free), just tell me where to send it:
