This month, I realized that I was making a HUGE mistake with my credit card debt, and it’s time to admit it.

Mr Krabs works for my credit card issuer, apparently.

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The average American household has about $13,000 in credit card debt, so my balance (about $4,000 at its max) is well below national average. However, I don’t want my life to ever feel like credit card debt is a “normal” and “average” thing.
As I have preached in my prior posts, you always need to figure out what works for you and what doesn’t, because not all financial tricks and tips can fit into our lives seamlessly. This post is me admitting that I had allowed a breach in my debt payoff system.

I was making extra payments towards my credit card debt ($800 per month, to be exact) and was enjoying my credit card balance dropping dramatically. $4000 > $3,200 > $2,400. Just a couple more months and my balance would be at $0. However…this month, my credit card debt is right around $3,900 again.

What happened?

Even though I was smart enough to take the card out of my wallet, I still knew where to find it, and I kept justifying major purchases because “it will be paid back down in just a month or two”.

I can’t quite endorse cutting up my credit card, although it’s probably exactly what I need to do…so I found a solution that will work for me.  I tilt my hat at every single one of you who are stronger than me and took the scissors to the plastic.

I am officially implementing four important adjustments to the way that I handle my debt.

Step 1:

I admitted defeat. I realized that I am not responsible enough to pay down a credit card that I can still access and use. The line of credit is just too tempting. Time for a change.

Step 2

I re-financed my credit card debt and scores a much lower rate (from 8.99% to 3.50%) to save on interest payments. When my new card comes in the mail, it’s getting destroyed. I don’t need it. If I want to use it, I have to request that one is mailed to me and I have to wait for it to arrive. That will give me 5-7 days to reconsider my impending stupidity.

Step 3:

I started making those hefty $800 monthly debt payments towards my student loans. Why? It’s a closed end loan with a high interest rate. Whatever money that I pay towards my student loan debt can’t just be “taken back out” as cash at Best Buy via their credit card terminal. Every dollar that I pay will fall directly into the Sallie Mae money abyss.

Step 4:

I will keep repeating this. I will keep paying off my closed-end loans. Using this new method, my student loans will be paid off in March. The following month, I will avalanche that cash onto my next closed-end loan: The Furniture debt. After that, my husband’s car will be paid off, then the credit card, then my car. This way, I am still getting out of debt, but if I want to use the cash that I have been paying, I have to physically go to my credit union and refinance something, or take out another loan. That’s my secret… I know that I will never validate doing that.

Tip: Read THIS POST on the debt avalanche trick.

Full disclosure: I got a 3.50% rate on a credit card through my employer. You can do the same if you refinance your debt and use the equity in a vehicle (or other major asset: RV, CD, etc…) that you own. Throughout the year, financial institutions run rate specials for signature loans as low as 3.99% that you can also utilize to save money. Likewise, if you have a low balance and/or high payment capacity, you should consider a balance transfer to enjoy a low rate for a time period. I covered the pro’s and con’s of balance transfers and other tools in THIS POST.

Success isn’t a straight path.

Being successful in budgeting involves realizing that things change frequently. You’ve got to be ready to adjust and go with the flow. Although I am taking a totally different approach to being debt free than I was when I made my first post in Man Vs Cash… I will still have my house paid off in six years.

…unless I put it up for sale this summer.

More on that later.