These People Had a Collective $250,000 in Debt. Here’s How They Paid It Off
Let’s face it: Credit card debt is a bummer.
It’s a thorn in your side, a chain around your ankle, a roadblock on the superhighway of life.
And the deeper into debt you go, the more it can seem like a bottomless black hole from which you’ll never escape.
It can be done, though. Just ask all of the people in this story.
Collectively, they were a quarter million dollars in debt.
We’re talking about mountains of debt here. But by hook or by crook, through a combination of strategy, discipline, persistence and smart money management, they all climbed out of the hole.
You can do it too, by following their examples.
Lauren Bowling, a personal finance blogger, paid off $8,100 of credit card debt in just three months by freezing her spending and taking on side gigs.
Eliyah Eells and her husband paid off $13,000 of debt in two years on a combined salary of $28,000 by getting rid of cable and their smartphones, never eating out, and moving in with her parents.
All of these people used proven methods you can use to turn things around and get out from under that burden.
Here are five ways to pay off your credit card debt:
1. Katherine Consolidated Her Credit Card Debt
Katherine, who works at a digital security startup in San Francisco, had $12,000 of credit card debt weighing her down.
She was paying a whopping 15.24% interest to her credit card.
Interest rates often rise above 20% and can persistently gobble up so much of your income that you’ll never get ahead. At that point, all you’re doing is paying off the interest, not the principal.
Instead of continuing to financially tread water, Katherine refinanced her debt with a debt consolidation loan.
Here’s how it works:
You get a personal loan from a lender at a lower interest rate.
You use the loan to pay off the balances on your high-interest credit cards. Then you repay the lender a fixed amount every month for a set time period, usually two to five years.
A good resource is online lending platform Upstart, which can help you find a loan without relying on only your conventional credit score.
Unlike traditional underwriting models that use only the common FICO scoring model, Upstart’s technology looks at factors like your education and employment history to determine your creditworthiness.
It can help you borrow up to $50,000, potentially with better terms (e.g. lower interest or lower monthly payments) than traditional lenders. If managing many different bills and credit lines is a hassle, you can also use an Upstart loan to streamline all of your loans into one.
The interest rates you’re offered on these loans will depend on your individual credit profile. Compare the lowest rate to what your credit cards are currently charging you. The average interest rate on credit cards these days is nearly 13%, or 16% for travel rewards cards.
Katherine saved $12,000 in interest by refinancing her $12,000 of credit card debt with a 5%-interest personal loan. Over the seven-year life of the loan, she’ll pay $2,000 in interest.
If she’d kept on making the minimum payments on her credit card, she would have paid $14,000 in interest over 25 years. Yikes.
2. Angela and Saskia Used the Debt Avalanche Method
South African couple Angela and Saskia Horn were $95,000 in debt.
They had a maxed-out credit card, a bank loan, a bank overdraft at its limit, two car loans and a mortgage.
They sold off possessions and embraced minimalist living. They also followed the “debt avalanche” method (also known as “debt stacking”), paying off the debts with the highest interest rates first.
Think of it as killing off your most toxic debt first — your most poisonous, radioactive, money-eating debt.
To get rid of your credit card debt this way, rank your credit cards by interest rate, from highest to lowest.
Here’s an example. (Note to readers: I am totally making these interest rates up.)
- Chase Visa — 22% interest rate — $5,000 balance
- Bank of America MasterCard — 19% — $3,000
- Citibank Visa — 13% — $7,000
- Capital One MasterCard — 8% — $1,000
Each month, make the minimum required payment on each card.
Then, use all your remaining available cash to pay off the card with the worst interest rate. Once you’ve wiped out that balance, move your debt-killing sniper rifle down to your next target.
This technique requires patience, but can save you significant money in interest payments.
And the more interest you pay off, the more momentum you gain — like an avalanche rolling downhill.
3. Cort and Katelyn Followed Dave Ramsey’s Advice
Cort and Katelyn Pincock, a married couple with two babies in Idaho, were $60,000 in credit card, student loan and medical debt.
They paid it all off in a year.
To do so, they took night jobs and side gigs. They also began following money management guru Dave Ramsey’s advice.
Ramsey champions the “debt snowball” method. Here, you’re still focusing on eliminating one credit card at a time, but you’re getting rid of the lowest balance first.
With this method, you’d rank those same four credit cards in a different order:
- Capital One MasterCard — $1,000 balance — 8% interest rate
- Bank of America MasterCard — $3,000 — 19%
- Chase Visa — $5,000 — 22%
- Citibank Visa — $7,000 — 13%
Once again, pay the minimum on each card, and use your leftover money to pay off the smallest balance. Once you’ve knocked that one out, move on.
The downside: In the long run, you’ll end up paying more in interest.
The upside: Wiping out each credit card balance will give you a “quick win” and pump you up to keep tackling your debt.
Dave Ramsey’s take: “It’s more important to pay your debts in a way that keeps you motivated to keep going until you’ve wiped them all out. If you begin with the biggest one, you might think you’re not making fast enough progress, lose steam, and not finish the job.”
Which method should you use? The one that works best for you.
4. Lisa Got a Balance Transfer Credit Card
Lisa Rowan, writer and producer for The Penny Hoarder, was $50,000 in debt. She paid off $30,000 of it in 18 months.
How? She hustled her butt off, snapping up as many side jobs as she could. And she played the balance-transfer game.
This could also be an option for you.
If your credit is good, apply for a zero- or low-interest credit card. To entice you, these cards will offer a super-low annual percentage rate (APR) — for a certain period of time.
Transfer the balance from your high-interest cards to your new card.
Obviously this step will not magically get rid of your credit card debt all by itself (Presto! Abracadabra! Debt be gone!). No, your credit card debt is still stubbornly sitting there, now occupying a different piece of plastic.
The advantage? You’ll be saving some serious coin on interest payments, freeing up cash to pay down your debt.
- You may be charged a balance transfer fee — typically 3% of the amount you’re transferring. Here’s a handy online calculator you can use to see if transferring your balance is worth it.
- That sweet low interest rate won’t last forever. After your new card’s “super special introductory promotion period” expires — often in six months to a year — its interest rate will shoot up. It might even end up higher than the interest rate you were trying to escape from in the first place. Read the fine print. Try to pay off your debt before this happens.
- Don’t get all spendy with that new credit card. It’s so shiny, so beautiful. It is MY PRECIOUS. That’s how we ended up in this situation in the first place, right.
5. Kyle Negotiated His Bills Down
Kyle Taylor, founder of The Penny Hoarder, used to be drowning in $10,000 of credit card debt.
Among those strategies: He negotiated down his bills.
You’re paying off your credit card balances with the same pot of money you’re using to pay your other bills. Why not try to cut down those other costs so you’ll have more money to apply to your credit card debt?
Use a free app like Clarity Money to take advantage of discounts you might not know you’re eligible for, and to help you negotiate your existing bills for stuff like cable… without going through the headache of calling customer service yourself.
If Clarity successfully negotiates a bill for you, it charges you 33% of that savings — but only once, and only after those savings have gone into effect.
The absolute worst case scenario: Nothing changes, and you just keep paying what you’re already paying now.
OR, you could end up freeing up some money. You’ll never know unless you try.
Bottom line: These are five ways to start paying off your debt. It’s time to get serious about slaying the credit card dragon!
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.