Let's Talk About Your Credit Card Debt

Before I dive into credit card debt, let's talk about luck, personal responsibility and the role they both play in having your finances in order. I only bring this us up so we can go into this conversation with proper perspective. 

It's important to understand that often times, having your finances in order is first a matter of luck and then a matter of personal responsibility. 

You have to first be born into the right family. Then you need to be lucky to have the "right' things nurtured in you. The right things tend to lead you to more luck and privilege, like being at the right place at the right time, getting a scholarship for college or not having to scramble to get a job right after graduation. 

Once you have this kind of luck, or ability to manifest putting yourself in the right place at the right time, then it's a matter of personal responsibility. Once you get the job, you still have to do the work - most of the time.

If you aren't lucky, it doesn't excuse you from being personally responsible for yourself, but your financial life becomes increasingly less about responsibility and more about circumstances. In other words, just like the privileged/lucky/those who can manifest their destiny, their circumstances shape absolutely everything.

So, back to the subject at hand:

What are the circumstances that lead you into credit card debt?

Did you start a business that isn't going so well? Did you simply spend outside of your means? If so, why? What motivated this behavior?

Understand how you got to where you are now. If you don't have a grip on this, these forces, invisible to you, can undermine what you're trying to achieve.

Knowing the circumstances that got you to where you are now is important. Because while your circumstances can be limiting, many of us are capable of changing our circumstances. Especially the lucky ones.

This is not easy. This takes a lot of work. And most of us are not willing to do this work. You have to look at things from various perspectives. You have to be honest with yourself and what you are capable and incapable of. You might have to beat the odds. You might have to claw your way out of the statistic that you could easily become.

Understanding your circumstances informs your plan to pay off the debt.

Step 1: Alter the Equation

The equation I'm talking about is the income - expenses equation. Either by luck or through personal responsibility, you have to earn more, spend less or both. 

How did you get into debt? Is it possible, through your own efforts, to get out of it and stay out of it by spending less and/or earning more?

Do you need a roommate to reduce rent expenses? Do you need to take public transportation because a new car isn't in the cards for you? Do you need to look for a better paying job? Here's the million-dollar question: How can you consume less and create more in actual and perceived wealth? This is the work I was talking about.

Step 2: Make a Plan

Firstfigure out how much you can afford to put towards your credit card debt each month.

Next, use a free tool like unbury.me.  Unbury.me is a loan calculator that helps you pay off your debts and create an optimized payment plan to minimize interest and get debt free as fast as possible.

It's important to make a plan first. If it's realistic, then as long as you're consistent and keep current with your plan, you'll see a light at the end of the tunnel. 

Everyone's plan will be simple and the same: every month pay more than the minimum you owe. In other words, attack your debt by using as much extra money towards paying down debt. Simple, but not easy. The tool helps make it easier.

Make a plan. Make a plan. Make a plan.

Step 3: Research Other Options

If you made a plan and it's not realistic or you want to get out of credit card debt faster, then you have a couple of options.

You can refinance your debt on your own. Refinancing your debt is the same thing as debt consolidation. You get a loan for the total amount that you owe for your credit cards.

You then use that loan to pay off your credit cards. The idea here is that you find a loan with better terms. Usually better terms means a lower interest rate or a fixed monthly payment or you get out of debt faster than you would have otherwise.


Option 1:  Refinance with the a rich family member whom you have a great relationship with and borrowing money won't jeopardize said relationship.

Remember that thing I said about luck? If this is you, recognize how lucky you are and exploit it. If you parents or rich Uncle Mort would be willing to refinance your credit card debt and they'll be cool about it, then that's a pretty good deal. 

Financing with a family or friend is typically the lowest cost of all loan options: no origination fee, you can ask for a lower rate or flexibility in making payments, no applications and no credit score required. But beware of the psychic tax or how this will impact your relationship.

Tips: Offer the person you're borrowing money from an interest rate. Give them loan terms. Set up an automatic payment to make sure you keep up with the payments. And if you need flexibility, communicate that ahead of time.


Option 2:  Refinance with a Personal Loan. 

Your relationship with your family and/or their financial circumstances might make a loan from them a non-option. Here are some options for a personal loan:

  • Your bank. Inquire with your bank to see if you can get a personal loan.
  • Other lenders:
    • SoFi  - An online lender with relatively low interest rates and if you use this link, you can get a $100 bonus;
    • Lending Club - An online, peer-to-peer lending option;
    • Payoff - These guys often charge an origination fee.

More often than not, personal loans carry fees of 1% to 6%, called origination fees. So you might end up paying less by simply tackling your existing debts in a systematic way, rather than consolidating.


Option 3:  Play the Balance Transfer Game

A personal loan forces you to pay off your debt over time. This is why I prefer it to transferring your credit card balance to another credit card.

But a personal loan only makes sense if you receive a lower interest rate than you have on your existing debt or if it helps you pay off your debt faster. Otherwise, getting a new loan to pay off an old one is just kicking the can down the road.

Keep Your Credit in Mind

You must have impeccable credit to qualify for the best rates for personal loans. If your score is 660 or above, you'll have good options. If your credit history is limited or you've got a poor credit score, you should manage your expectations right now and expect to pay rates at the higher end of the ranges advertised.

Be Consistent

Yeah, this step sucks. I know. It's all the behind-the-scenes work that needs to be done in order to have the fleeting moment of glory. Think about it. You're probably good at something. Think about that thing you're good at. 

Maybe you're freakishly good at juggling or you're excellent at your profession - writing scripts, producing music, dancing. I'm sure you have moments of glory. You know the moment. When you do that thing and people praise how awesome you are at the awesome thing you're awesome at.

But you know how you got awesome: First you were lucky . Then you showed up and did the work. You were consistent. Maybe you were talented, but mostly you just worked hard. Same thing here. Be lucky. Then be responsible.