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How to Get Out of Credit Card Debt, In 6 Simple Steps

By: David Bach  |  Last Updated: October 5, 2020
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLEStep 1: Get organized
Step 2: Rein in your spending
Step 3: Renegotiate the interest rate on your debt
Step 4: Pay for the past, pay for the future
Step 5: DOLP your way out of debt
Step 6: Make it automatic

Almost half of Americans, 47%, currently carry credit card debt. And for many of them, the Covid-19 crisis is making their situation worse: 23% of U.S. adults with credit card debt have added to it during the pandemic, according to a May 2020 report from CreditCards.com.  

Ultimately, if you want to build lasting wealth, you need to get out of the red. You can’t get rich if you continue to run up credit card balances and pay only the minimum due. If you do that, you’ll just make the credit card company rich while you stay poor.

Here are six steps that will help you get out (and stay out!) of credit card debt once and for all.

Step 1: Get organized

The first step to climbing out of debt is to understand exactly how much you owe. You can’t expect to make progress without knowing where you’re at.

Start by figuring out how many credit cards you have. Next, go through your statements to see how big of a balance you’re carrying on each card. Once you’ve tallied up the grand total of everything you owe, it’s time to start chipping away at each balance.

Step 2: Rein in your spending

If you’re in a credit card hole, you need to stop yourself from digging a deeper one. To do so, it’ll help to chuck your shovel. In other words, get rid of your credit cards. Take them out of your wallet, freeze them, cut them up — do whatever you need to do so you won’t be tempted to swipe them.

I speak from experience here: I used to have a huge problem with credit card debt. In college, I racked up more than $10,000 in credit card charges buying clothes, furniture and other things I didn’t need and couldn’t afford. After trying all sorts of self-control exercises, I discovered that the only one that worked was to stop going shopping with credit cards in my pocket!

Step 3: Renegotiate the interest rate on your debt

Now that you’ve taken action to prevent your situation from getting any worse, you can work on making your current situation better. Start by asking your credit card company for a lower interest rate, which is an easy way to save money on interest payments. Here’s how to do so:

1. Find out how much interest you are paying. Pull out your credit card statements and read the fine print. What’s the interest rate you are currently paying on your balance?

If it’s not obvious, call the company and ask. Tell them you want to know the effective rate, not the rate above prime. They will understand the question and, by law, have to answer truthfully.

2. Ask for a lower rate. Now that you know the rate you’re currently paying, tell the credit card company it’s too high and you’d like them to lower it. (Do this with all the credit card accounts you have.) As for what to ask for, do some research before you negotiate: Look at the national average for credit card rates (it’s 16%, as of September 2020) and ask for lower than that.

If the company says they can’t do it, tell them that you’ll be closing your account this week and transferring your balance to a competitor that offers better rates. Have the name of the competitor ready so they take you seriously. 

In many cases, you can cut your rate in half simply by asking — and you may even get the company to waive the annual fee for your card.

3. Consolidate your debt. If you have several credit cards, an effective way to make it easier to get out of debt is to consolidate all of your balances on just one card. When you’re negotiating your rate with credit card companies, tell them that you’re prepared to move all your credit card debt to the company that offers you the lowest rate. (If it’s not possible to consolidate your debt, don’t worry. I’ll address that in step 5).

The goal of this step is to find the lowest interest rate you can. Now you’re prepared to get yourself out of debt completely.

Step 4: Pay for the past, pay for the future

In an ideal world, you’re saving 10-20% of your income for your future self in a retirement account. If you’re in debt, though, you’ll need to follow a slightly different plan. Here’s what I suggest: Whatever amount you decide to pay yourself first, split it in half, with 50% going to you and 50% going to your debt.

Say you earn $50,000 a year and can afford to pay yourself first 10% of your pre-tax income. Normally, this would mean you’d be putting aside $5,000 a year, or $416 a month, for your future self. But if you have credit card debt, you’ll split the $416 a month in half, putting aside $208 a month for yourself and $208 a month to debt reduction.

This way, you can make progress on your future while also getting yourself out of debt. The rationale is as much emotional as it is financial: By doing both at the same time, you’ll feel your progress. You’ll see money being saved and debt being reduced.

Step 5: DOLP your way out of debt

DOLP stands for: Done On Last Payment. The idea here is to rid yourself of credit card debt once and for all by paying off all your balances in full, one at a time.

You’ll complete this step if you have a lot of credit cards and you can’t consolidate them onto one card. After all, if you have a bunch of cards to pay down, the process can be daunting. Do you pay a little on all of them at once? Or should you concentrate on one card at a time? And if so, which one first?

This is where the DOLP system comes in. Here’s what I want you to do: 

  1. Make a list of the current outstanding balances on each of your credit card accounts.
  2. Divide each balance by the minimum payment that particular card wants from you. The result is that account’s “DOLP number.” For example, say your outstanding Visa balance is $500 and the minimum payment due is $50. Dividing the total debt ($500) by the minimum payment ($50) gives you a DOLP number of 10.
  3. Once you’ve figured out the DOLP number for each account, rank them in reverse order, putting the account with the lowest DOLP number first, the one with the second lowest number second and so on. This is the order in which you are going to pay off your various balances. 
  4. Take half of your pay yourself first money (from step 4) and apply it to the card with the lowest DOLP number. For each of your other cards, make the minimum payment. Once you’ve DOLPed your first account, turn your attention to the card with the next lowest DOLP ranking. Continue doing this until every card is paid off.

Step 6: Make it automatic

The easiest way to follow through on your debt-repayment plan is to make your payments automatic. To do this, call your credit card company and tell them you would like to arrange for them to make an automatic debit from your checking account each month to cover at least your minimum payment. If they can’t do that, check with your bank and see if they offer online bill-paying services that allow you to arrange to have money automatically transferred from your checking account to your credit card company on a specific date each month. 

If it’s automatic, you won’t stray from your plan, will never miss a payment and will be well on your way to living debt free.

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