Ruth's Two Cents: Overcoming Credit Card Debt Struggles

Hi Ruth,

I really need some help with my credit card debt situation. Over the past few years, I’ve racked up a lot of debt due to unexpected expenses. Now, it’s all adding up, and I feel completely overwhelmed. On top of that, I’ve got my regular living expenses like rent, utilities, groceries, and transportation. I can’t cut back on these because they’re essential. How can I start paying off my credit cards without sacrificing my basic needs? I’m stuck and don’t know where to start!

Thanks for reaching out. You’ve taken the first step, acknowledging your problem and starting to seek solutions. Credit card debt can sneak up on you without you realizing it is even happening, and I understand how overwhelming it can be to face it head-on. But take a deep breath. You’re not alone in this, and there’s a way out.

Acknowledge the situation and stop taking on more debt

The initial and crucial first step is accepting where you are. You’ve already made a significant move by seeking help. Now, let’s channel that energy into a solid plan. Say “NO” from this moment to taking on any extra debt. Remove all credit cards from your physical and virtual wallets. Delete credit cards that have already been loaded onto online stores. To get out of debt, you must stop going into it.

Find your debt

Find all your credit card statements (online or on paper) and list your debts using a pen and paper. I like using physical paper because it is rare to do so these days, and having it lying open on your desk makes you look at it. Note each card’s lender, balance, interest rate, and minimum payment. This will give you a clear picture of what you’re dealing with. Knowing these details is empowering and will help you prioritize which debts to tackle first. If you have other debts, such as a car payment, student loan, personal loan or mortgage, list them too. If you are tackling debt, you could go the whole way and lay all your cards on the table!

Create a realistic budget

Next, you need to get crystal clear on where your money is coming from and go to. Track your monthly expenses using PocketSmith. Note down everything — rent, utilities, groceries, transportation, and any other costs; essentials and luxuries — all of it. Then, compare this against your monthly income. This will highlight the gap between what you earn and what you spend. This ‘gap’ can go towards debt repayment. You want this gap to be as big as possible. If you find that there’s very little or nothing left, don’t panic. This exercise is purely about understanding where your money is going.

Identify areas to cut back

You mentioned that you can’t cut back on essentials, but I want to challenge you on that assumption. Can you:

• Move into a smaller and cheaper room in your flat?
• Get a roommate in your spare room?
• Stop using your vehicle?
• Cook very basic yet nutritional food?
• Cut all non-essential subscriptions or insurance?

Take a far harder look at your ‘essential’ spending instead of accepting the status quo. If it’s not essential to your survival, cut it. You can add it back later when you are not so broke. This approach has no grey areas, and you will surprise yourself at how much cash you can free up. Remember, you are trying to increase your gap.

Set up an emergency fund

To stop yourself from taking on new debt, make saving a $1,000 ($2,000 if you can manage it) emergency fund your priority. While saving money when you’re in debt might seem counterintuitive, having an emergency fund will prevent you from falling back on credit cards for unexpected expenses. This buffer gives you peace of mind and keeps your debt repayment plan on track.

Investigate the Debt Snowball and Debt Avalanche methods

These are two popular strategies for paying off debt.

• Debt Snowball: Once you have written out your list of credit card debts from largest to smallest, focus on paying off the smallest debt first while making minimum payments on the others. Once the smallest debt is paid off, move to the next smallest, and so on. This method provides quick wins and boosts your motivation.
• Debt Avalanche: Focus on paying off the debt with the highest interest rate first while making minimum payments on the others. Once the highest-interest debt is paid off, move to the next highest, and so on.

I prefer the Debt Snowball because interest rates begin to matter less if you get after it. But whatever method you choose, the key is to get busy! The sooner you get all this credit card debt out of your life, the sooner you can move on. If you tippy-toe around it, the debt will hang around.

Automate payments

Keeping track can be tricky if you have several debts on several cards. Set up automatic payments for the minimum amount due on your credit cards, and using your pen and paper, track the payment amount and the payment date. Update the decreasing balance as you go, and when it’s paid off, reallocate that payment to the next debt. This helps you avoid late fees and keeps you on track. It also removes the panic you currently feel. With a plan set up and working, plus a hand-drawn list you can refer to, you can assure yourself that you are on track to get out of debt.

Stay motivated and celebrate wins

Debt repayment may feel like a marathon, but all marathons have a finish line. The reason that I prefer the Debt Snowball as opposed to the Debt Avalanche is that your first payoff will happen quickly. Most people in debt have some small debts hanging about, and with focused intensity, you can wipe them out fast.

I want you to celebrate each milestone. Have you paid off your first credit card? That’s a huge win! Share it in the chat of a debt-free social media group, and you will be encouraged by the support you receive. Mini celebrations keep you motivated and remind you that progress is being made. I’m a fan of displaying your debt list on a wall at home so you can see them and then enjoy crossing them off one at a time.

Avoid future debt

As you work through paying off your debt, take note of the lessons you’re learning. Challenge your ingrained thinking. Build better financial habits to prevent future debt, including never using a credit card again. If you have not taken the time to consider why you went into debt in the first place, you run the risk of going back into debt again. You mentioned a lot of unexpected expenses, and I want you to learn how to prepare for the unexpected bills that will continue to happen. Once you are 100% out of credit card debt, you can increase your emergency fund to hold up to 3-6 months of expenses, and this should take care of any future events you could not foresee coming.

Get unstuck, and get moving!

The most important thing is that you’ve decided to tackle your credit card debt and that you are willing to make a start. You can pay off your credit cards with a clear plan, working your tail off, and showing patience and persistence. Don’t stop until you are done. It may have taken you years to accumulate these debts, but it need not take years to wipe them out. You may have to sacrifice your lifestyle, but it will be short-term. Most people I speak with underestimate their capabilities, so envision your finish line and get cracking!

Got a burning money question for Ruth? Send them through to [email protected]!

Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.