How to Smash Your Credit Card Debt…forever

– Hi, I'm Matthew Morrison from The Practice Following on from last week's video on how to save money and how to use bottom-up budgeting to really start paying yourself first, in this week's video I'd like to take you through what I think are the four key steps to smash credit card debt forever

Imagine you're at home trying to fill your bathroom sink full of water, but you're not using a plug You've got both taps on full boil, pouring water in there trying to get it to the top Trying to build wealth for the future while also spending a lot of money on credit cards and having a high credit card limit is like trying to fill your bathroom sink full of water without using a plug It takes a lot of effort pouring water in there, it takes a lot of time, a bit of frustration Sometimes you feel like you're getting ahead, and then it falls back a little bit

But of course, as soon as you turn that tap off you're left with nothing Far too often over the years I've met with well-meaning, hard-working people that have dug themselves a massive hole by taking on obscene amounts of credit card debt that's now suffocating them Being drawn in by easy money through credit card debt and also personal loans, and then spending to the limit, is unfortunately one of the major reasons why most people are not making anywhere near the financial progress they could be It's also one of the reasons why unfortunately most people are unlikely to achieve financial freedom during their working lives If you're watching this, then I think it's fair to say that one of your major goals is to create financial freedom for yourself and your family

If that's a goal then do yourself a favor and rid yourself of the reliance on credit cards forever You don't need them If you really must have a credit card then keep it to a $1,000 limit Even better yet, use debit cards and spend your own money rather than the bank's money Even if you feel like you manage credit cards well, don't fall into the trap that I did back in my late 20s and have a $15,000 credit card limit just because the bank offers it to you

It's amazing how an overseas holiday becomes the destination of choice when you have a $15,000 credit card limit, when a holiday within Australia would have been just as suitable, and for about a fifth of the price If your credit card limit is currently $15,000, chances are you will eventually owe $15,000 Reduce your credit card limit to $1,000 This is a form of taking money off yourself If it's not there you can't spend it

But what if you currently have a credit card debt that you're struggling to pay down? Chances are one of the big reasons you're struggling to pay it down is because it's still active and you're still using it If that's the case, implement these four steps to rid yourself of credit card debt forever Step number one, cut up the card If this scares you, then maybe set up a second card but with only a $1,000 limit You'll never pay off your current credit card if it's still active and you're still using it

Every dollar you pay off the credit card will eventually be spent on something else, and in a few months' time or maybe a year's time you'll be back in the same position you are right now Cut up the card today, seriously Step number two, consider transferring the credit card balance, or balances if you have more than one, transfer that to a low interest rate credit card or a 0% introductory offer for say 12 to 18 months on balance transfers This will ensure that every dollar you pay off the credit card actually comes off the balance owing and doesn't just go toward servicing interest and paying the bank But really importantly, when the new provider of the second card sends you that credit card, cut up that card too

Step number three, decide on the specific date that you'd like to pay off the credit card by Step number four, based on step number three, break that down into monthly repayments, and then refer back to last week's video on bottom-up budgeting Then every month you get paid or how often you get paid, take that money off yourself and allocate the money first towards the credit card debt Importantly, as you're paying the credit card down, contact the bank and have them also reduce the limit accordingly This is the way of actually taking money off yourself

If it's not there you can't spend it As an example of these four steps, let's say right now you have a $6,000 credit card debt and it's at its limit and you're struggling to pay it down, and let's also say that in 12 months' time you'd like to be completely clear of credit card debt, so starting immediately, first step, cut up the card Step number two, transfer that card to a zero interest rate introductory offer, or at least do a low interest rate offer, depending on what you can get in this environment Included in that second step, cut up card number two Step number three, decide on the specific date that you plan to pay off your credit card debt by, then break that $6,000 down into monthly payments, of course $500 per month, and every month when you get paid take that money off yourself and allocate the $500 first to pay down that credit card debt month by month

And every single month, contact the second bank and ask them to reduce the limit accordingly One of the great things about doing this, it actually builds a habit of taking the $500 per month off yourself, so in 12 months' time that $500 per month that you're in the habit of taking off yourself can be used to really fuel your wealth-creation plans rather then just paying back bad debt If you're like one of the many people who have let their credit cards get out of control and also let their credit cards really control their financial habits and spending habits, then implement these four steps to rid yourself of credit card debt forever This will be one of the turning points of your financial future, and really set yourself up for success by getting in the habit of taking money off yourself, and then down the track you can use that habit to really fuel your wealth-creation plans Hopefully you got some value from this video

Thank you for watching Subscribe, of course, if you haven't already, to really be one of the first to see these videos on a weekly basis Thank you again for watching, and I'll see you on the next video