Paying off credit cards is hard, and there is a ton of advice about how to go about becoming debt-free. First of all, credit card debt is a spending habit problem. With a few exceptions, credit cards are used to fund our lifestyle when we do not have the money. Stores make it hard to resist purchasing stuff that we don’t have the money for: they offer store credit cards that appear to help but are designed to trap us into a never ending cycle of payments and interest. Or we just want the stuff (whether things or experiences) that we really did not need or have the funds for.

You are now maxed out and you want to get out of debt. Now what?

Don’t pay off your card as a way to force you to live within your means. Just like a diet, fixing your spending problem will take weeks, if not months, as you learn and get used to not spending money that you don’t have. If your cards are maxed out, you have no choice but to stay on budget. And, like any other habit, after a few weeks and months, it gets easier and easier to control spending and begin to see the results. 

But, what about all that interest you’re paying? It’s true that paying interest is a very expensive consequence of overspending, but the extra interest is a small price to pay to learn a new lifestyle habit that will stay with you and benefit you for the rest of your life. 

Now, start saving. First, continue making minimum and timely payments on your cards so that you do not get into default. Second, add the equivalent amount paid to the credit card company to a savings account and watch that account grow, not the credit card balance decrease.

The reasoning behind this strategy is that by focusing on something positive like watching a savings account grow will give you incentive to add to that account and do the steps to reduce spending even more. The beauty of a savings account is that you can always take the funds and pay off the credit card. But once the credit card is paid down, the only way to get the funds back is to do more spending, which is counter to trying to get out of debt.

Wait, what about the extra interest rate paid on the balance of the credit card? The interest paid will be higher than if the card is paid down faster, however the amount of extra interest is much less than you would think. Basically it’s the equivalent of five monthly payments (made to the credit card and the savings account), meaning if you can pay off your credit card in 42 months, you will save enough money in your savings account in 52 months to pay off the card in full. 

If you have saved the funds, you can now feel much more secure as you will have an emergency funds account available in case you need it. Paying off the card will erase the debt, but you won’t have the emergency funds available either. It’s a personal choice, but the interest can be worth it considering the benefit gained.

Viviane Thompson is a Certified Public Accountant at Thompson Accounting Company, PLLC. Connect at 520-822-8208 and VivianeThompson.com. See ads, pages 19 and 39.