How We Paid Off $14, 789 in Credit Card Debt by Finding the Best Debt Payoff Strategy

After the Great Recession, many households started to increase their savings and looked for a debt payoff strategy to reduce their credit card debt. With the recent improvement in the national economy, there are signs that Americans are starting to go back to their old bad habits of charging up their credit cards.

According to the Household Debt and Credit Report recently published by the Federal Reserve Bank of New York, total credit card debt for American households increased by $11 billion dollars for the 4th quarter of 2013. The total credit card debt for Americans now stands at an astronomical sum of $683 billion dollars.

Just because things are looking up for our nation's economy, and our personal finances, our family will not be jumping back on the credit card bandwagon. During the last two years, we've taken steps to stop using credit cards, and have paid off over $14,789 in credit card debt.

How We Got In Over Our Heads with Credit Card Debt 
We lost over a third of our total household income when I lost my job during the Great Recession. At the same time, our budget faced added pressures due to high medical bills, and eventually the unemployment ran out. Like many unemployed Americans, we turned to our credit cards to pay for prescriptions and other necessary expenses, and it wasn't long before they were maxed out. It soon became apparent that we had to take serious steps to stop living paycheck to paycheck and get our finances back on track.

Eventually we were able to create a budget and reduce many of our expenses so that we were actually saving money at the end of each month. Part of our savings went to establishing our rainy day and emergency savings funds so that we would no longer need to charge unexpected expenses on a credit card. Once these funds were established, we looked at ways to pay down our credit card debt, despite our modest salary. We used the following steps to create a plan to pay down our credit card debt.

Time is Money - Invest Some Time into Researching Strategies to Pay Down Debt

When we first began to get a handle on our finances, we spent some time researching topics like how to create a budget, boost savings and strategies to pay down debt before we made any concrete plans or took any steps to improve our finances. You can do a simple online search for these topics and come up with a wealth of information that will help you to come up with a workable plan. It also helps to encourage you when you read the success stories of others who have overcome financial difficulties to get out of debt.

In the course of our research we discovered that there are many plans to help you to pay down debt, but most of them boil down to three strategies: paying the credit card debt with the smallest balance first, paying the credit card debt with the highest interest rate first, or paying the debt with the highest minimum payment first.

The Benefits of Paying Off the Credit Card with the Smallest Balance First 
There are pros and cons to using each of these strategies. Since we had such an astronomical amount of credit card debt, and several credit cards, it seemed an almost impossible task to think we could pay off all of our credit card debt on our limited income.

We decided to tackle this mountain of debt by starting with the credit card that had the smallest balance. We continued making our minimum payments on all of our credit cards, but we started to put our extra dollars towards paying off the credit card with the smallest balance first.

Paying Down Debt is Hard Work - Celebrate Your Success

Once we paid the first card off, our family had a little ceremony in the backyard where we burned a print out of this card's highest balance, and we had cake afterwards, like it was a party. We celebrated this small success at tackling our debt and this helped to give us a psychological boost and encouraged us to stick with our budget to continue saving money to pay down our other credit card debts. We were also able to add the minimum payment from the first card to the extra amount that we were paying on the second credit card.

Over two years, we were able to pay off eight credit cards and $14, 789 using this strategy. We've continued to celebrate each success with a bonfire and cake. We still have 2 credit cards left, and about $12, 000 to go, but we are whittling the balance down quickly by sticking to our budget and continuing to add the minimum payments for cards that we have already paid off.

Why Other Debt Reduction Strategies May Work Better for Others

Critics will say that we are paying a bit more in interest over the course of the debt by not paying off the credit cards with either the largest balance or greatest interest rate first. This is probably true, but if you are like us and your debt level is overwhelming and seems insurmountable, paying off the card with the smallest balance first can give you the encouragement that you need to keep going.

Regardless of which debt payoff strategy that you use, it is important to celebrate your success when you stick to your budget and pay off a debt. It takes both having a realistic, workable budget as well as determination over the long haul to make a successful debt payoff strategy.