5 Ways to Eliminate Credit Card Debt

When Henry Ford’s Model T went on the market in 1908, there was no such thing as credit when it came to buying a car. If you wanted a Model T, but you didn’t have enough money to purchase one yet, you would go the Ford dealership every other week and deposit part of you paycheck, in cash, into a Model T savings account. Once you had saved up enough money, you got the car. It was a simple, old-fashioned way of doing business, it avoided the hassle of debt and it worked for the working-class American consumer of the early 20th century. That is, until Ford’s rival automaker General Motors started selling its cars on credit.

Because it seemed easier and more accessible, people began buying more cars from GM than from Ford. Ford, in turn, was forced to give in and adopt GM’s credit strategy in order to be able to compete. Today, the credit economy is a largely unquestioned fact of American life. Real estate and virtually every major personal item is purchased on the basis of credit. From cars to stoves to big screen televisions, consumers today accumulate thousands of dollars in debt every day.

The current financial crisis is partly a result of a consumer culture based squarely on the idea of credit. We are constantly bombarded with buy-it-now-pay-for-it-later advertisements that encourage reckless credit card splurging. The only way to get out of a crippling credit crisis is to reverse the practices that led to it. Perhaps some old-fashioned financial practices and debt advice could teach us a thing or two. Which is not to say that we should hoard all our money inside our mattress, but rather that we should change the way we spend and monitor our wealth. Here are five, simple changes in money habits you can make to help eliminate credit card debt.

1. Stop spending more than you make. It would seem like common sense, but you’d be surprised at how deeply we are hardwired to spend what we don’t actually have. If you are knee deep in credit card debt and continue to spend more on your credit cards, you’re obviously not going about solving the problem the right way.
2. Use cash instead of plastic. Several studies have shown that people spend more freely when they’re using cash substitutes, like credit cards or casino chips, instead of cash. We simply don’t attach as much value to plastic squares or numbers on a screen as we do to hard cash. So the next time you go out to buy a new pair of shoes or that plasma screen you’ve been eyeing for a while, try paying in cash instead of signing your name on a credit card receipt. Just seeing the actual money that you are going to lose on a purchase make you think twice about impulse spending.
3. Write up a budget. It can be hard to do at first, but making an organized list of expenses helps you see just how much unnecessary and wasteful spending you partake in each month. Much of these discretionary expenses aren’t really that hard to do without, once you think about it. Necessary expenses, such as rent/mortgage, insurance, food and utilities will take up the bulk of most budgets. Out of the money that you have left over, give yourself a certain amount to play with and have fun. But stick to whatever amount you give yourself. A simple budget system can make a big difference, as it no longer gives you free reign to spend what you don’t have on things you don’t need.
4. Try getting a better rate on your existing credit cards. Transferring your debt balance onto a low interest or 0% APR credit card can provide you with some extra monthly cash. Whether you can lower your rate, or how much you can lower it, will depend on the quality of your credit score. Getting professional credit debt counseling on this might be helpful, but keep in mind that do can deal with your creditors directly and do not need to enlist the services of a third party unless you want to. Not everyone will qualify for a lower rate, but it is well worth it to try. The low “teaser” rate will only last six to 12 months. Use these to save up money and start paying down your debt.
5. Once you have started doing all of the above things, you should have a couple hundred dollars extra each month. Put this extra cash towards eliminating your debt. Apply all of it to the debt with the highest interest rate until it is paid off and then move on to the debt with the next highest interest rate. If you maintain this financial discipline (living within your means, using cash as much as possible, budgeting, etc.) your credit card debt should become way more manageable after just a few months.