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Wednesday, July 14, 2010

WFMW - Credit Card Motivation

Years ago, we paid off all our credit cards and our car (this took years to do).  But we failed to cancel our credit cards, in case we needed them in an emergency.  Then we decided to purchase a van, believing we could afford the payments.  We could but it stretched our budget and we made a few poor decisions that we ended up putting some charges on our credit cards.  A few thousand dollars later, we were feeling the weight that comes with being a slave to the lender.  We got serious about paying off that debt, again.

If you have been trying to pay off credit card debt, you've probably heard about Dave Ramsey's Debt Snowball method.  If you haven't, here's a very quick summary - list your debts from smallest to largest, then tackle the smallest one first (paying minimums on all the rest).  The reason you pay off smallest to largest is for the excitement you feel paying something off - it motivates you to keep going.  If you worked on the largest debt first, it would take longer to get that "reward" so you might lose your momentum.

But what do you do if you have a huge amount you're trying to pay or you are still losing your momentum?  We needed a reality check that second go around of paying off consumer debt.  Do you notice I bolded consumer?  That's because so much of what we, as a country, use our credit cards for is consumed.  Here's what we did...

In addition to smallest to largest, I made a LONG list of all the charges that made up the debt.  So if there was a $1000 balance, I made a list of all the charges on that credit card, working backwards in time so I could see what made up the $1000 (I made interest charges their own item).  Then as we made a payment of $50, I looked at the oldest charge and if the $50 covered it, I marked it off or as many items as the payment covered.  Sometimes that charge was an interest payment.  Sometimes it was an oil change that a vehicle needed.  And sometimes it was a trip to McDonald's 18 months ago!!!!  Isn't that ridiculous?!  We were paying for something we ATE 18 MONTHS AGO!

That was a big reality check for us!  It was also a great motivator.  At that time, I was working part-time from home.  We lived off of my husband's salary and used my variable income to pay off the debt.   If I saw that the next oldest month of charges was $125, I would work really hard to make at least that much of a payment from my next paycheck.  I was paid every two weeks and everything from my checks (after tithing) went to decreasing debt or emergencies.

So check out what you're actually paying when you pay your next credit card payment.  It will probably surprise you what you're paying for - and hopefully motivate you to move forward in getting rid of that credit card and not use it again.

This method definitely Worked for Me for motivation and reality.  For more Works for Me Wednesday, check out We Are THAT Family.

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