Ground zero. Yep, this is how it all started. Our interest in personal finance. Our budgeting strategies. Our hatred of credit card debt. This is it.
My wife started working in December after passing the Bar Exam in November of 2015. Upon receiving her new job, my wife also inherited around $15,000.00 in credit card debt. How does one inherit this type of debt? I’ll tell you.
My wife’s parents split up around 15 years ago. Instead of arguing about expenses for their 3 children, they set up a foolproof system. The 3 girls would receive a credit card upon their entering high school and all monthly expenses would go on these credit cards. Theoretically, her parents would pay the balance in full every month. Any overspending is easily monitored by her parents. Problem solved, right? Wrong.
The credit card balances grew and grew and grew. Full monthly payments were traded for minimum balance payments. Interest grew and suddenly, each card had a decade of monthly expenses with compounding interest.
Back to our story . . .
So my wife and I married in April of 2016 and we set out to create a budget. We both laid out our debts, incomes, and monthly expenses. Staring us in the face was a mountain of credit card debt. We were credit card novices and didn’t know about the interest rates on the credit card. The current rate for the $15,000.00 in debt hovered around 19%! Minimum payments weren’t even covering the interest on this debt. Did we panic? NO! We made a plan.
After a quick google search on paying off credit card debt, I found several articles on balance transfers for credit cards. Enter the Chase Slate card. This card allows you to transfer balances from multiple cards with:
- 0 transfer fees,
- 0% APR for 15 months,
- and no annual fee.
If this sounds too good to be true, it’s not. Chase makes money off of balance transfers because most consumers transfer balances and fail to pay off the debt before the 15 month period ends. After the introductory period of 0% APR ends, the interest rate is a variable APR of 15.99%, 21.74% or 24.74% on balance transfers and purchases. Not so good.
Ok, so we have our balance transfer card. Are there other options? Yes and no. When choosing a balance transfer card, you want 0 transfer fee, 0% APR for as long as you can get it, and 0 annual fee.
Bank of America has another credit card with similar features. All other cards I’ve found have balance transfer fees of around 3%.
So how do we avoid interest on this mountain of debt? Simple math. We took the amount of debt and divided that debt by 12 months and set aside that amount per month to pay off the balance. Why 12 instead of 15? Two reasons: interest and oopsies.
Interest:
If you divide the balance by the maximum amount of interest free months, you may end up owing a small amount due to interest that accrued before you transferred the balance to your card.
Oopsies:
What do you do when life happens? Maybe you get sick and have medical expenses. Maybe your air conditioning breaks and you need to pay for repairs. Whatever happens, expect to miss a couple of months of payments due to emergency expenses. In our case, we had some significant medical expenses pop up after a couple of months of payments. This set us back a couple of months, but we still made our deadline with room to spare.
How to come up with additional funds to pay off the credit card debt?
- set aside money from your paycheck . . .easy right? Basically, you pay your balance at the beginning of the month with surplus funds from your budget. This is the easiest way to pay off debt, but you knew this right?
- sell your junk. Walk through each room in your house or apartment. Do you have things taking up space? Sell that stuff right away. Check out this great article on decluttering your life. Our toolbox also has great recommendations for selling your unwanted or unused stuff. You have money all over your home!
- get a side hustle. Uber and Left are easy ones. Don’t have a car? Try providing seasonal services for those in your neighborhood. Mow lawns or trim shrubbery. Check out YouTube for videos on how to from a lawn like a pro. During the holidays, try hanging lights or working holiday hours at stores. The economy needs good workers and jobs are plentiful. Work on the weekend at places like Dominos or Home Depot. I was able to earn over $2,000.00 a month at Dominos during college. Try listening to podcasts about personal finance or self-improvement while you are working. Multitasking!
We were able to pay off our debt IN FULL in 11 months. It wasn’t easy and it wasn’t fun, but when we made that last payment, the wight of the world lifted off of us.
Do you have 10k or more in credit card debt? Try our method. Get rid of that burden and make those extra funds work for you. Share your stories of success in the comments!
Stay rational.
-B&T