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How to Create a Credit Card Debt Escape Plan

If you've got a plastic problem, here are three possible ways to attack it

By Beverly Harzog

(The following is adapted from The Debt Escape Plan by Beverly Harzog.)

When I was in my 20s, I managed to rack up more than $20,000 in credit card debt. I have no excuse for my situation. I spent a ridiculous amount of time shopping and never tracked my spending. Carrying a credit card balance became my new normal. Before long, I maxed out on seven cards. I had my “rock bottom” moment when my favorite credit card was canceled.

That’s when I devised a debt escape plan and paid off $20,000 in credit card debt in two years.

(MORE: Breaking a Credit Card Addiction)
If you have credit card troubles, here’s my Debt Escape Plan to pay off your cards, boost your credit score and learn how to live debt-free so you won’t get into credit card debt again:

3 Debt Payoff Methods to Consider

There are two tried-and-true methods to pay off debt — the Debt Avalanche and the Debt Snowball — plus one newer one that I invented — the Debt Blizzard.
None is right for everyone; you need to decide which is right for you. No matter which method you choose, however, make sure you stick with it or you’ll end up with a Debt Glacier—a ginormous debt that hangs around forever because it’s so slow moving.

Creating a Debt Avalanche
With the Debt Avalanche method, you list your credit card debts and their interest rates and then start by paying off the highest rate first. In the example below, you’d first attack the Capital One card debt because it has the highest rate.
Let’s assume that you’ve also gotten serious about your spending and have found a way to spend $220 less each month (I show you how you might do so in my book). Now, if you combine the $198.33 minimum payment for the Capital One card with the $220 in found money, and make yourself pay Capital One $418.33 every month, you’ll have this balance paid off in about 21 months.

(MORE: Credit Score Myths Debunked)

During that time, you’d pay only the minimum amounts on your other debts.

Tip: You’ll save the most money with this method, but you need to be disciplined because you won’t get a quick boost from paying off debt with the Avalanche.
Throw a Debt Snowball
This method, advocated by a few personal-finance gurus, relies on the idea that paying off your smallest balance first will give you a big psychological boost. That boost, in turn, gives you momentum to stay motivated and continue paying off your debt.


(MORE: Nearing Retirement? Time to Tackle Debt)
After you pay the smallest debt, you then set your sights on the next smallest debt. Interest rates are ignored with this method, so you’ll pay more in interest expense. In the Snowball example below, you’d start by paying off the Discover card, since it has the smallest balance.

See how this changes everything? You end up paying a lot of interest on the Capital One card, but you get to pay off more of your debts along the way. So if the number of debts has you up at night, and you’re fine with spending more to take that approach, who am I to argue with that? I just want you to be aware that you’re paying more this way.

Go All Out With a Debt Blizzard 

The Debt Blizzard combines the best aspects of the Debt Snowball and the Debt Avalanche methods. It’s for those who want a quick fix, but would also rather save on interest expense in the long run.
With the debt blizzard, you put your credit cards in order starting with the smallest balance, to get a quick burst of adrenaline. You paid off a credit card! Then, you jump into the avalanche method, feeling confident and pretty pleased with yourself. So, as you’ll see from the example below, the order for four balances would be: smallest balance, then highest interest rate, then second highest interest rate and then the third highest interest rate.

Using a Money-Management Site to Budget
If you already have a budget and it hasn’t worked for you, you might want to use a free money-management website that will store your financial data online. The biggest concern most people have when they think about entering their account information online is whether it’s secure. Generally, these sites have solid protections in place.

My favorite is Mint,  which I use. If you’re willing to link to your accounts, you get up-to-date and in-depth analysis of your financial data.
There are a lot of reasons I like Mint. You can set up a budget, set retirement goals, create payoff plans, and more. I love the graphics, especially. Mint tracks your spending and you can view your finances in pie charts, graphs, and bar charts. You can compare your spending month-to-month and year-to-year. I think it’s very helpful to view your spending history because it helps you understand your patterns.
You can use Mint on your iPhone, iPad, Android, Android tablets, Windows 8 and Windows 8 phones.

Beverly Harzog is author of The Debt Escape Plan, the Consumer Credit Adviser for Lending Tree and a nationally-recognized credit-card expert and consumer advocate. She runs a popular credit blog on Read More
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