A Simple Strategy To Pay Off Your Credit Card Faster
Credit cards are easy to max out and hard to pay off. This simple strategy will help you pay off your credit card faster than you ever thought possible.
Credit cards can be really easy to Max out and really difficult to pay off. Having credit card debt in your life is extremely toxic, both from a financial perspective because you’re paying so much interest as well as an emotional perspective because there’s so many different balls you need to juggle. If you have multiple credit cards and it’s just sucking energy and sucking finances out of your life. At one point in our life, I’m sure you’ve all had credit card debt and chances. I’ve had credit card debt for quite some time, so in this episode I want to talk about how to pay off credit card debt. I’ve used this method to successfully pay off credit card debt and myself, unfortunately due to personal circumstances, I’m now back in credit card debt, but I’m starting to pay it off again. Hi, I’m Ryan from on-property helping you achieve financial freedom and yeah, we want to get rid of those credit cards.
We want to pay them off and we want to start building our wealth. So how do we pay off our credit cards faster? Will step number one is to stop using the card. A lot of people say in this circumstance to cut up the card and sure, if you have no self control than I do recommend you can go ahead and cut up the card for me. That wasn’t necessary. What was necessary was to stop using the card. That means disconnected from paypal. That means no more direct debits coming out of the card and that means the card no longer lives in my wallet. It stays in a cupboard in my house and doesn’t get used. It can be there. I feel safe, insecure, like it’s a safety net if I ever need it, but I’ve stopped using it completely. There’s nothing coming off that card anymore.
Nothing’s being added to it, so now the focus is paying it off. This is probably the most important step that you do because trying to pay off credit cards while you’re still using credit cards is extremely confusing and it’s just so easy to just tap that credit card and to buy something that you need even though you might not be able to afford it, so stopping using it. If you only do one tip, that’s number one, stop using it and then slowly pay off the debt, but if you don’t stop using it, the rest of the tips probably won’t be very useful to you. The next step is to write down your debts from smallest to largest. Now you can pay off your credit cards in any order that you want, but paying them off from the smallest to largest is called the snowball effect, and this can be beneficial to us because it’s emotionally good to pay off a debt, to pay off a credit card and to have it completely done, and then move on to the next one.
Logically, it may be better to focus on the debt with the most interest, even if that’s the largest card. Maybe you’ve got one credit card that’s charging you 23 percent, one that’s charging 13 percent. Logically, it makes sense to pay off that 23 percent card first, but hey, if we were all completely logical vulcans with no emotion, that we probably never would have gotten into credit card debt in the first place. So go ahead and list them from smallest to largest, you can pay them off however you want, but it is emotional benefit to paying off those smaller debts first and working our way up to the largest. The third step is what I think really turned the tide for me to go from having a Max out credit card for years to being actually able to reduce that and eventually pay that off. So this was really key and that was to set up automatic payments.
So rather than paying your credit card when you feel like it or paying your credit card when you have money left over, what we’re going to do is when we get paid, we’re going to take some money from our pay immediately and we’re going to pay ourselves first. So we’re going to reduce our debt first before we pay for our living expenses. And before we go on and live our lives, I’ve set this up completely automatic through my bank. I use ing and so basically each and every week when I’m paid by the business, a certain amount of money would then go and pay my credit card. So I stopped using the credit card and now there’s money going onto the credit card above and beyond that minimum repayment every single week. This is automatic. I don’t have to think about it, and the reason this has beneficial is that if you pay yourself first, so you pay your credit card before you start living.
Then when you look at your bank account, you’re thinking, how can I live off the money that’s left over, or how can I make more money? But you sing that figure in front of you. After the credit card’s already been paid, you then go on and your brain will work out how to live off whatever you have left or how to make it a little bit more on the side so that you can live. That’s why that’s so valuable is that it just happens automatically. Your credit card will automatically be paid off and you can then shift your focus to now living a life with the money that you do have left. Step number four is to pay for everything with cash. Now I’m not talking about just physical cash because that’s quite impractical in this day and age, but you can get obviously f postcards and visa debit cards that you can use where you can purchase items, but it’s using your own money from your own bank account.
This is going to require you to set a budget and there’s multiple different ways to create a budget and live within your means. Some people get cash out, put it in different envelopes for different categories, and they can only spend the money that’s in that envelope. What worked for us was we would basically pay our bills and rent and everything, and then we would have a set weekly amount that we could spend discretionarily on whatever we want. So some weeks we might spend more money on food somewhere too. We might spend more money on going out. Some weeks we might spend more money on kids’. It’s up to us what we spend that week. Now we have a certain amount of money that we’re able to spend each week and once that money is gone, then it’s gone. So step number four, pay for everything in cash. So again, you’re not using credit cards anymore.
Step number five is a biggie and it’s really going to accelerate your credit card reduction and that’s actually expand and look for ways to earn extra money on the site. There’s so many extra ways to make money these days. There’s things like airtasker, there’s sites like Odesk where you can work for other people on the side. You could start a side business or a side hustle. You could sell some things on Ebay that you don’t need anymore. What we’re doing now is we’re automatically paying our credit cards anyway. We’re living within our means and now we’re expanding our means. So we’re looking for ways to earn extra money. This is going to have two massive benefits. The first is that we’ll pay off our credit card faster, so all that extra money that you earn, use it specifically just to pay off your credit card. But the second benefit of this one is that after we’ve paid off our credit card, we’ve now learned these extra ways to bring extra money into our lives and once our debt is paid off, that extra money can then be used to start building your wealth.
And that leads into step number six, which is the start building up a savings buffer. One of the reasons I kept a credit card for so many years was the fact that it was like an emergency fund for me if I ever needed it. Forget the fact that the credit card was maxed out. This was how I thought about it. If I ever needed a repair on my car or my kids got sick or went to hospital, I had to start working for awhile or something happened to one of my parents in Sydney and we had to fly the whole family down. The credit card was a savings buffer, will not really a savings buffer button, an emergency fund if something happened. So rather than have the credit card, we’re going to build up our own savings buffer using our own money. So ways that you can do this is once you’ve paid off your credit cards, those automatic payments that you’re using to pay off your credit cards, they can now go into a separate bank account and start to build up your savings, the extra money you’re earning on the side that you’re using to pay off your credit cards.
That can also go into this savings account. Scott Pape from the barefoot investor, calls it the Mojo account and if you want to see how I set up my bank accounts with the way that he recommends, then go to on-property dot com.edu forward slash 5:10 and you can see all the bank accounts explained over there or I’ll leave a link in the description down below as well, but he calls this the Mojo account, which I think is actually a really good name because it gives you your Mojo back. You’re not scared about debt anymore. You’re not worried about emergencies anymore. You’ve got this set amount of money that if something happens, you know that you can draw from that money. He recommends that you start at about $2,000 and then build it up from there, but whatever you feel comfortable with, obviously you can work with and then build it over time.
And that leads to the final step. Step number seven, and that’s actually go ahead and formally cancel your cards. Now, some people may want to do this, some people may want to keep their cards just in case I’m not here to judge you, but what I will probably do is once my credit card is paid off, I have that savings buffer. Then I’m gonna go ahead and cancel that card. That means I won’t be paying the annual fee anymore. It means I won’t be tempted to use the card anymore and it just means I’m not gonna have any credit card debt in my life. So some people might want to keep their cards around. Um, I guess a lot of you probably want to go ahead and get rid of them. Not that hard to do. You can call up your bank and cancel them, or you can go into a branch and cancel them.
And this means you’re going to be rid of credit card debt. You’re in the habit now of automatically saving, spending and earning extra money on the side. You can now focus on building your wealth without toxic credit card debt in your life. So hope that this has been helpful to you. Credit cards can suck so much money from our pockets. They can also suck so much energy from our lives. They’re toxic both financially as well as emotionally. So I’m really excited for you to get on top of your credit cards to hopefully go out there, take these tips, and pay them off and be debt free, and to then start to focus on building your life. Start focusing on building passive income and start focusing on achieving financial freedom. If you liked this video, please check out this other video that I did with Ben Everingham on whether we love or hate credit cards. You’ve probably got an idea that I’m not a massive fan of credit cards, but that’s a great video where we discuss the pros and cons about it and why we don’t really like credit cards. Again, I’ll leave that link in the description down below as well. Thanks so much for watching. I wish you the best of luck of paying off your cards and until next time, stay positive.