Create a plan to pay off credit card debt

Treat existing debt like a loan on a car or student loan. We recommend that you isolate past debt to a low interest fixed-rate for the life of the loan credit card. Do not use this card for current purchases. If you need a credit card for current purchases, use another card and pay it off every month!

Be careful about very low interest cards which pop up in rate after six months or a year. People tend to use these cards and make the minimum payments. After the initial term expires, they suddenly are being charged a hefty interest rate. If you know you can pay off cards within the initial term, fine. If you think you will carry the debt after that term, opt instead for a fixed rate card that won't tempt you to put off payments or amass more debt.

Like weeds, debt is easy to grow and very difficult to kill. I know some of you are thinking, "I'll just move it to another low rate initial term card when the initial term expires." I call this "doing the credit card dance."

The problem with doing the dance is that:

• low rate cards may not always be offered to you,

• many cards have a transfer fee to move balances that may wipe out interest savings,

• in some cases, this may affect your credit rating,

• If you are continually charging and not paying off the balance, you are digging a deeper and deeper hole.

Do some analysis of the past debt to figure out what payments you need to make every month to pay it off in a fixed period of time. To do this, you can use a financial calculator, a loan calculator on the web, a spreadsheet or ask anyone who knows how to do this to create a schedule for you.

Let's say you have $10,000 of debt and want to pay it off in three years. If you have a card with an 8% fixed interest rate you need to pay $313.36 per month to pay it off.

Every time the credit card bill comes, make that payment. Use extra money to begin to build your cash reserve. Once that reserve is substantially built and you have good new habits in place you can speed up the timeline on paying off you debt by making bigger payments.

Once the past debt is gone, you will have no debt and sufficient cash reserves to prevent you from going back it debt. You will have broken your debt cycle and replaced this costly bad habit with a good habit which makes you money.

Keys to success are to make debt payments and cash reserve payments you can afford, and be careful about not over-spending. Be patient about how much time this may take. Just keep on course and you will eventually get there.

Barbara Bachelder, CFP® for Wealth by Design, LLC