Your responses to debt

On Monday I asked whether you feel debt is a good thing or a bad thing.

And WOW.

Here were the results:

Here we some of the responses:

Incredible!

All great.

So, one thing we can all agree on is that credit card debt is terrible. Most people don’t?go?into credit card debt overnight. Instead, things go wrong little-by-little until they realize they’ve got a serious problem.

If you’ve ended up with credit card debt, this email is for you.

Yes, it can feel overwhelming.

Yes, we can come up with a plan.

But above all we need to take ownership of the situation and take disciplined steps to reduce your debt.

Here’s how:

5 Steps to Getting Rid of Credit Card Debt

STEP 1:?Figure out how much debt you have.?You wouldn’t?believe how many people don’t know this and continue blindly paying off any bills that come with no strategic plan. This is exactly what credit card companies want because you’re essentially just dumping money into their pockets. You can’t make a plan to pay off your debt until you know exactly how much you owe.?

It might be painful to learn the truth, and psychologically this feels like hell, but you have to bite the bullet. Then, you’ll see it can be quite easy to end this bad habit.?

In fact, you can get credit card companies to help you.

But for starters:?Log in?to each of your accounts and put your answers into a simple spreadsheet or even write your answers on a piece of paper.

This first step is the hardest.

But you’ll have a definitive list of exactly how much you owe.

STEP 2:?Decide what to pay off first.?Not all debts are created equal. Different credit cards charge you different interest rates, which can affect what you decide to pay off first. In reality, there are only two methods to go about this:

SNOWBALL METHOD:?

• How It Works: Pay the minimum balance on all credit cards but pay more on the cards with the lowest balance. Rinse and repeat until debts are paid off.
• Why It Works: Psychology and compounding small wins. Once you see the progress you’re more motivated to keep paying debts.

AVALANCHE METHOD:

• How It Works: Pay the minimum on all credit cards but pay more to the balances with the highest interest rate. Rinse and repeat until debts are paid off.
• Why It Works: Purely numbers, you want to pay off the balances costing you the most.?

This is a big debate in the personal finance world.

Technically, the snowball method isn’t the most effective way to pay off your debt, because paying the card with the lowest balance doesn’t necessarily have the highest APR. But on a psychological level, it’s enormously rewarding to see one credit card paid off, which in turn can motivate you to pay off others more quickly.

So much so, that I'd actually recommend the snowball method.?

Here's why: Nothing?feels worse than knowing you've made a mistake and have?credit card debt.

We already know debt is bad.?In fact, most of us already know what to do about it.

So, what’s stopping us?

The answer isn’t just “money,” it’s psychology.

Getting a quick, easy win by using the Snowball method and paying off one of your credit cards can be a huge victory that builds momentum and encourages you to pay off more of your debts.

Bottom line: Don’t spend more than five minutes deciding.?

Just flip a quarter if you have to and pick one method?so that you can?get to work. The goal is not to optimize your payoff method, but to get started.

STEP 3:?Negotiate the APR.?I’m a huge fan of saying, “Fuck it — why not?” This is why you should try to negotiate down your APR. If it doesn’t work, I’m sorry, you can?scream and shout and be upset that I wasted five minutes of your time. Call your lender and use this script:

YOU: Hi. I’m going to be paying off my credit card debt more aggressively beginning next week, and I’d like to get a lower APR.

CREDIT CARD REP: Umm, why?

YOU: I’ve decided to be more aggressive about paying off my debt, and that’s why I’d like a lower APR. Other cards are offering me rates at half of what you’re offering. Can you lower my rate by 50 percent, or only 40 percent?

CREDIT CARD REP: Hmm… after reviewing your account, I’m afraid we can’t offer a lower APR. We can offer you a credit limit increase, however.

YOU: No, that won’t work for me. Like I mentioned, other credit cards are offering me zero percent introductory rates for 12 months, as well as APRs at half of what you’re offering. I’ve been a customer for X years, and I’d prefer to switch my balance over to a low-interest card. Can you match the other credit card rates, or can you go lower?

CREDIT CARD REP: I see, let me pull something up here. Fortunately, the system is suddenly letting me offer you a reduced APR. This will go into effect immediately.

It doesn’t work every time, but when it does, you can save a good chunk of money with a five-minute conversation. Make the call, and if you’re successful, don’t forget to recalculate the numbers in your debt spreadsheet.

STEP 4:?Decide where the money to pay off your credit cards will come from.?One common barrier to paying off debt is wondering where the money should come from.?Balance transfers? Should you borrow from your 401(k)? How much should you be paying off every month? What about debt consolidation?

These questions can be daunting, but don’t let them stop you from taking action.

(Note: I'll cover a few of these?questions?in Friday's email.)?

But make no mistake: The single?best thing you can do to get pay off?credit card debt — and stay out of credit card debt — is reduce spending and prioritize debt. This is the most?boring and?also?most sustainable way to pay off credit card debt, which is of course the least sexy.

But it works.

Let me ask you a question.

Right now, for every $100 you earn, how much of it goes to debt? Two dollars? Maybe $5? What if you paid $10 toward your debt? You’d be surprised that many people don’t even have to cut much of their spending to pay off debt quickly. They just have to get serious about what they’re trying to accomplish and make a consistent, intentional effort to pay off their debts.

I don’t want to make this sound easy, because paying off your credit card debt is challenging. But millions of others have done it.

And I know that whoever you are reading this, you can do it too.

STEP 5:?Get started.?Within the coming week, you should pay more money toward your debt. If you find yourself taking more time than that to get started, you’re overthinking it. Remember, the goal is not to research every last corner of the internet to find the magical solution that will work for your unique situation; it’s action.

Figure out how much debt you have, decide how you want to pay it down, negotiate your rates, and get started.?

You can always fine-tune your plan and?adjust as you go.

ACTION ITEMS

Pay Off Credit Card Debt Aggressively (one week to plan, then start paying more)

If you have debt, start paying it off. Not tomorrow, not next week, today: Give yourself one week to figure out how much you owe, call the lender to negotiate down the APR, and set up your automatic payment with more money than you’re paying now. Getting out of debt quickly will be the best financial decision you ever make.