One of the best things I ever did was deciding to reprioritise my cash flow into paying off my credit card debt.
Like many people out there, I had numerous open credit cards with money owing – some with small balances, some with balances I regularly paid off and some that were simply too large and not going anywhere.
The biggest problem I had was tracking these cards. They were with numerous providers and all had different interest rates, payment dates and balances owing. Some had balance transfer offers that were going to expire (but after 12 months I nearly always forgot when it was they would expire) and thus found myself in a frustrating situation of been overwhelmed by the management of all this information.
I decided that by trying to be sophisticated with my money management, I was actually creating more issues. This is when I decided that I needed to take charge of my credit cards and list them all out in a spreadsheet. Here is what I did to regain control and go on to repay them all in full.
I listed every credit card I owned (including my partners)
Using Excel, I created a spreadsheet that had a column dedicated to the name of the credit card (the exact name so I knew which product I had) and ensured I captured every single card, regardless of whether I owed any money.
It was rather amazing to see – until you list your credit cards, you don’t really understand just how crazy of a situation you have got yourself into. Even having more than two cards is really a little crazy when you think about it.
I listed the balance owing on each of these cards
I logged into Internet Banking for each of these cards and checked the amount I owed and logged the balance owing for each of the cards into my spreadsheet.
I then tallied up the total amount of money I owed and got a true sense of the total liability I had on my hands. Each of the debts created a different feeling when viewed in isolation, yet seeing them all in one place again reiterated just how much debt these cards added up to and my need to get motivated and moving (fast) to repay them.
I listed the total credit limit for each card
While I was checking the amount I owed, I also checked just how large my limit was for each of my credit cards. After seeing the amount I already owed, knowing that I had potential to go even further into debt due to the limits actually scared me into more motivation to repay.
The available limits I hadn’t used could easily allow me to fall into a position of owing double what it is I already owed. Scary.
I listed the ongoing variable interest rate of each credit card
One of the biggest problems I always had was knowing exactly what the interest rate was for each of my credit cards. Some where lower than others, some where higher.
I found that I was well aware of the interest rates when signing up, yet over the course of using the cards I quickly forgot. I noticed that I was using a credit card with a higher interest rate more frequently, when I could have easily been using a lower rate credit card that had available funds.
I listed when the payments for each were due
Given my new desire to repay these credit cards, I now wanted to log exactly when each of the cards required payment. This allowed me to have a sense of control to organise my cash flow around ensuring I met the required payment dates.
Most of the cards were due at the end of the month, while others were due at strange dates due to when I signed up for them. I was able to use these dates in my spreadsheet to see exactly when it was I would need to make my cash flow available for repaying the debts.
I documented when the balance transfer period would be over
Given I had a few credit cards that were opened for balance transfer offers, I noted when these offers would be over. The offers were giving me 0% interest for nearly 12 months, however I wasn’t fully utilising this time to make bigger and more frequent repayments to minimise my debt.
Listing when the balance transfer period would end actually served as a real kick up the bum to get back on track and have a plan of attack for my credit card repayments.
I now had a summarised view of my credit cards
How did I feel? Well, to be honest – I felt overwhelmed. How had I managed to get myself into debt across numerous cards? The answer was simply that I didn’t have a plan and allowed myself to get into a bad situation by not taking the view that debt = bad.
What did I do?
I opted to expedite the repayment of my smallest debt (using the debt snowball method of repayment) to give myself a quick win. I think the balance was around $500 so I went above and beyond to reclaim any cash I could by reducing small purchases and sacrificing a chunk of my next pay cheque to simply get rid of it (at the expense of not having much money to live on).
I then rounded up my other debts and consolidated them onto a credit card offering 0% for 20 months interest free but this time I did so with a very different approach.
- I reorganised my budget to prioritise my goals around repaying the debt
- I worked out how much I wanted to pay per month and changed that to a fortnightly amount
- I opted to make fortnightly payments in line with pay cheque
- I automated the payment out of my account on the exact day I got paid
- I logged the exact date that the 20 month balance transfer offer would end
Knowing that my debts had been consolidated and that I now had a framework to repay them regularly and at a higher amount made me feel good. In fact, I felt great. I was back in control of my debts, I had a play to repay the amount owing over the next 20 months and I had gone from multiple credit cards to just one.
While I can look back and criticise myself for getting into that much debt – I decided to not be harsh on myself, learn from my mistakes and pledge to never allow myself to make the same mistake again.
So what happened in the end?
I spent 20 months repaying the debt, adding extra money whenever I could (e.g. when I got a tax refund or sold items around the house) while opting to reduce my credit card limit with each significant milestone of debt repaid.
At the end of the 20 months I had only a few hundred dollars owing and simply paid it off with one easy BPAY payment on the day of receiving my pay cheque. I went on to close the account and open a credit card that only had a $500 limit and now days repay it in full at the end of each month.