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  • Writer's pictureSarah Gagnon

Get Out of Credit Card Debt in 3 Years.

Updated: Mar 30, 2019

My plan is to be debt free in 3 years with the exception of my mortgage and student loans. My plan is simple and straight forward but I wasn't able to pursue this goal of being debt free until recently. I don't have bad credit score and I always pay my bills on time. The issue with my finances was my income to debt ratio is too high. And it sucks. Basically, I have more debt than I have in earnings. That is how I have accumulated more than $10k in credit card debt.

I am planning to close 4 out of 5 credit cards I own - I have an Old Navy, Target, Home Depot, Master and Discover card. The one card I am keeping has a credit limit of $1,500.00 and I have had this card since I was 18 years old. I have 2 out of the 5 cards already paid off - the Old Navy and Target card.

The Snowball Method... did not work for me.

The Snowball Method of paying off debt is paying off your smallest amount of debt first. Once you have that debt paid off, you take the amount you were paying on that debt and put it towards your next smallest debt. For example, I would pay off my Master card first because it has the smallest balance of $1,500.00 while making the minimum payment on my other two cards. Once I had my Master card paid off, I would take the amount I was paying on my Master card, let's say $200.00, and add that towards my Home Depot card. So my monthly payment for my Home Depot card would be the $200.00 plus the minimum payment. Once I paid off my Home Depot card I would transfer that same $200.00 to my Discover card payments.

The issue I have with this method is I would pay off my smallest credit card, then needed to use it. And I would end up back where I began. I know you're thinking "why didn't you just cut up the card and not use it?".

Well, I was making enough to cover my bills. I had bought a car and a house within a year of each other along with never ending student loan payments - more than half of my monthly income was going towards my debt.This did not include anything like gas, groceries, personal items, cleaning supplies,etc. So I needed those credit cards to just live.

This is what is working for me...

I am finally at a place financially that I am able to both save and still be able to pay off my credit card debt by the time I am 31. Whoot! Whoot!

My first goal is to create a "oh shit fund" so I DO NOT have to rely on my credit cards when some major unexpected expense occurs. My goal for this fund is to save $5,000.00 which is my Regions savings account. If I need this money, I can easily transfer it to my checking account. Right now I am putting $200.00 a month into this account but once I hit $3,000.00 I am going to cut back to just $100.00 a month until I have reached my goal amount. Any extra money I receive (taxes, birthday, Christmas, etc.) is going to go into this savings account as well.

Now that I have started my "oh shit fund", I taken out a personal loan with Prosper. I will pay off the remainder of my credit cards with this loan and close out all but that one credit card I mentioned earlier. I chose paying off my credit cards with a personal loan because I am not able to get ahead of the interest that I am accruing on my credit cards. This makes it impossible to pay off my credit cards while not needing to use them. The loan will automatically be withdrawn from my checking account. My monthly payments will be about $571.18 a month (this amount includes the interest) which isn't much more to what I am currently paying. My loan will be paid off in 3 years guaranteed!

Along with getting out of my credit card debt, I am wanting to stop living paycheck to paycheck. For me the two seem to go hand and hand. I have opened up SEVEN 360 Saving Accounts with Capital One (there are plenty of options out there for this type of savings account). I have a savings account for dog expenses, getting my hair cut & colored, car maintenance & insurance, house maintenance, travel, clothes, and website/blog expenses. Right now I am just putting money into these accounts. The accounts like my hair fund and dog expenses will be used more often (monthly or bi-monthly) compared to the car and house expenses which I will probably use a few times a year. I am now putting $25.00 a month into each account (I had to adjust how much I was putting into each account once I was approved for my personal loan).

I choose the 360 Savings Account because you can have up to 25 (I think) accounts. Now, my grandmother would advise against this since you are not going to accrue as much interest as you would if all your money was in one savings account. This is true. But accruing interest isn't my goal. My goal is to get ahead of my bills and be able to pay March's bills with February's paychecks.

I have ANOTHER savings account with Ally Banking (another online only savings account). I am putting $100.00 a month into this account (for now). There is no plan for this money other than to just save it.

Why? Because I am investing in my future. Can you imagine in 5 or 10 years what opportunities I will be able to pursue because of this money.

I just opened a second checking account for the sole purpose of managing my spending habits (I did open this account with a different bank other than Regions). I will direct deposit my money for gas and eating out - this includes my breakfast & lunch through the week at work as well as going out with friends and family.

It is obvious with my credit card debt that I have struggled with budgeting and managing my spending habits. I have created a system so there is no way for me to be able to blow my budget. So to sum it up I have 2 checking accounts and 9 savings accounts. My car loan will also mature in 2021. So in 3 years the only debt I will have is my mortgage and student loans!

You may not need 11 accounts as I do. Your living expenses will be different than mine. You may be better at saving or sticking to your budget compared to me. This is my system of getting out of the living paycheck to paycheck cycle while working towards my goal of living debt free.

Let me know what's working for you and comment below!

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