Credit Card Debt Happens. Now What?

I’m 33 years old, and my credit card is finally paid down. I owe nothing to the bank, I only buy what I can pay for in cash, and after all the tears and anxiety I can possibly handle, I am finally free.

Just kidding. At 33, I’ve carried a credit card balance for my entire adult life, and until recently I had made peace with the fact that I will likely do so until I die. My relationship with money has never been healthy. But I’ve largely figured that as long as I can afford rent, food, car payments, and whatever-else-I-need-money-for, the memories from a few modest trips, clothes, or emergency laptop replacement (never work next to open cans of Diet Pepsi) living on Visa statement is par for the course.

Which is denial on my part. Not only because carrying a large credit card balance is the stuff of anxiety nightmares, but because high interest cheats you out of reveling in the payments you do make. I know you should always try and pay your credit card down every month, but I also know that life happens and that can be impossible. So I do what I’ve always done when faced with something that overwhelms me: I ignore it.

But I’m tired of doing that. I’m tired of feeling like I’m facing a financial tsunami every month, and I’m tired of feeling like I’m only one missed paycheck away from a missed payment (and the subsequent domino effect). I am 30-goddamn-3 years old. And I’m ready to reclaim my income from a bank that relishes in owning most of it. So I’m going to take steps to teach myself how to get out of debt.

The thing is, as soon as you begin to think of debt as larger than life, you’ll shame spiral. So think of it like this: debt is just a number.

A big number maybe, but something you can write on a page and change with time. And I’ve started doing just that: I’ve found all my outstanding debts (and reader, there are so many I had to check my credit report to find them), written them down in a notebook, and accepted that the accumulation of what I owe isn’t the sum of my worth as a person. Debt happens. We’re people. And nothing’s going to get better if any of us equate a negative balance with who we actually are. So forgive yourself (I’m still working on it), and take a second to acknowledge that you’re doing the work, and it’s all a part of your story.

You’ll want to build up a cushion of cash before you really start digging into your debt.

To avoid putting any more charges on those credit cards, you’ll need some float in your bank account. $1,000 to $1,500 is a fine start (learn more about emergency funds here). Then instead of begging Rudy, the customer service guy, to give you two more days to pay your dreaded Rogers bill, you can focus on movin’ forward. But don’t forget to make the minimum payments on your cards (or more, if you can) all the while.

You should also check whether you can use low-interest debt to pay off some nasty high-interest debt.

If you happen to be one of those blessed humans with a stable job and a reasonably ok credit score, you can try marching to the bank and asking for a line of credit with the lowest interest rate available to you. If you’re successful and can get credit with an interest rate lower than your credit card, cheer in triump, then use it to pay off as much of your credit card balance as you can. Now work your snappy new line of credit into your debt repayment plan.

Then, pick a method to pay it down.

You can tackle your debt in order of highest to lowest interest rate % (the avalanche method), or you can pay off the smaller debts first to get yourself on a roll (the snowball – and my personal go-to). From there, create a budget. Calculate how much you can afford to pay down each month. A good goal? 10-20% of your after-tax income. A good way to stick to it? Make the money automatically come out of your chequing account each payday (either right onto your debt balance or into a KOHO Savings Goal).

Don’t panic if 10-20% of your paycheck feels like a stretch at first.

Prioritize minimum payments to keep your credit score in check – especially since low credit means you only get access to high-cost debt, and that makes everything worse. And if you can pay more? Great! Consider it a victory. (I absolutely do.) You can use a budget to see what’s actually a reasonable goal for you.

Plus, you have KOHO. You don’t have to face your debt mountain alone. You can use KOHO Goals to help keep your budgeting plan in place. And remember, if you’re feeling really stuck, you can call the credit provider to see if they can cut you some slack, draw up a consumer proposal (which is an offer to pay creditors a percentage of what you owe them or to extend your time to pay down debt), or work with a nonprofit credit counselling agency.

The thing is, you (and I) can do this. We can chip away at our debt and take small steps to ensure a big impact. We can obliterate our high-interest cards and loans and reward ourselves with savings accounts or a low-interest credit card that we actually pay off every month. And, we can remind ourselves that debt is a universal problem and nothing to be ashamed of.