Blog | Personal Finance

5 Tips for Paying Off Credit Card Debt in 2022

Is one of your 2022 new year’s resolutions to improve your finances? You’re certainly not alone — a Harris Poll conducted in December 2019 names “improving your finances” the second-most popular resolution for this year (first place goes to “losing weight”). In fact, over three-quarters of U.S. adults made financial resolutions in 2020, with top goals including:

• Following a budget (43%)

• Planning to get out of debt (37%)

• Establishing savings (33%)

• Boosting retirement savings (30%)

The poll also shows that 72% of U.S. adults admit to experiencing unexpected financial setbacks in 2019, citing transportation issues (25%), housing repairs/maintenance (23%), medical care for an injury or illness (21%), and inability to keep up with debt/falling behind on payments (20%) as the culprits.

It also reveals that more than half (53%) of U.S. adults admit to living paycheck to paycheck, blaming credit card debt as the top reason. There’s no worse feeling than wondering how to pay off credit card debt when you have no money.

Do these statistics describe your life? If so, then it’s time to change your financial direction for 2022. Take the opportunity to begin a new decade with healthier financial habits — and that includes abiding by this credit card debt payoff plan. I’m going to show you how to pay off debt fast and even show you the best way to pay off multiple credit cards, as well.

Good debt vs. bad debt

First, let’s briefly talk about good debt versus bad debt. Good debt is debt you use to acquire assets. Bad debt keeps you trapped, pulling you back instead of moving you ahead.

Credit card debt (which, in most cases, falls into the “bad debt” category) is the second-most-common type of debt after mortgage debt. Now, perhaps someone once told you that a mortgage isn’t the type of debt you need to worry about, so let me squash that lie right now: your house is not an asset and therefore your mortgage is not considered good debt. Read that again. Your house is bad debt! And the average U.S. household owes $207,861 on mortgage debt, not to mention another $28,882 for their automobile.

The average American owes $6,006 on bank-issued credit cards. Whether your number is higher or lower than this average makes no difference — the credit card debt payoff strategies I’m about to share with you apply equally.

And how do I know these tricks to paying off credit cards work so well? Robert and I once had a tremendous amount of bad debt. Some was from being broke and charging as much as we could on our credit cards just to survive. More bad debt came from an early business venture of Robert’s that went south. So trust me, we’ve been there and done that — and now we’re passing our knowledge along to you.

Pledging to zero-out your debt

From this day forward, if you so agree, do not accumulate additional credit card debt. If you charge an item to your credit card, then pay that amount off when the statement arrives. If you have credit card debt that is more than 30 days old, then pay off all newly acquired debt and put a plan in place to pay off the old credit card debt.

Here’s why this approach is so important: Credit card interest is always compounding, and over time it quickly adds up. Let’s say you have $100 in debt and it accrues 20% interest every month. In your first month, you will be charged $20, which gets added to your original debt. The next month, you are again charged 20%, which now comes out to $24. So after only two months your debt has gone from $100 to $144. Yikes. That’s literally throwing money away — and nobody can afford to do that.

So, here’s your official five-step plan:

1. Pay off new credit card charges every month

   First thing’s first when deciding how to pay off debt fast: resist the urge to shred your credit cards. Why? Credit cards have their advantages, so don’t cut them into pieces or hide them in the freezer. Instead, use them as a convenience, as a record-keeping tool, and as a way to verify to other creditors your ability to be financially responsible.

2. Don’t charge the small stuff

   One of my top tricks to paying off credit cards is to never charge small purchases. It’s astounding how quickly all of our minor daily purchases add up—from your daily coffee fix to a magazine at a convenience store. And it becomes very easy to justify all those small purchases at the moment. Only $3 for a lip balm because I accidentally left mine at home? No problem! But at the end of the month, those purchases really do add up.

   Using physical paper money creates tangible awareness of how much you’re doling out each day. It might even cause you to reconsider some of those small purchases when you find yourself running out of cash too quickly. Starting today, try using cash for any purchases under $20 and see how your spending habits adapt.

3. Pay off existing credit card debt

   Remember how I mentioned I’d show you the best way to pay off multiple credit cards? Listen up! Robert and I were in a great amount of bad debt many years ago — around $400,000. It was incredibly stressful and caused many sleepless nights. But we paid off all of our debt in less than 10 years, including credit cards, car loans and home mortgages.

   For our credit cards, we came up with an extra $100 in income per month (but try for more if you can!). How? By getting creative and finding ways to expand our means — maybe one of these five side hustle ideas will help you earn the extra cash you need when wondering how to pay off credit card debt when you have no money. We then applied that additional $100 to our monthly payment on only one of the credit cards and paid the minimum payment plus the extra money on that one credit card. While we were focused on that, we paid only the minimum amount due on all other credit cards.

   Once the first credit card debt payoff was complete, we applied the total amount we were paying each month on that card to our next credit card. This means we were paying the minimum amount due on the second card plus the total monthly payment we were paying on our first credit card.

   Continue this process with all your credit cards — with each debt you pay off, apply the full amount you were paying on that debt to the minimum payment of your next debt. As you pay off each debt, the monthly amount you are paying on the next debt will escalate.

   It is possibly to become debt-free — often within five-to- seven years — but you must make the decision to do so and start today.

4. Consider transferring your credit card balance

   Be on the lookout for opportunities to transfer your credit card balance to a card with no interest for a specific period of time — this will offer you a much-needed breather from those compounding interest rates (assuming you qualify based on your credit score). For instance, some balance transfer cards offer 12- or 18-month promotional periods with no interest on balance transfers.

   When choosing to do this, don’t forget to ask about any balance transfer fees you might incur while completing the transfer (and then decide if the math works out in your favor). And don’t use that credit card to rack up any more debt. Finally, pay close attention to the date in which this promotional period ends — if you don’t pay it off by then, a new APR will be assigned to your remaining balance. Before you proceed down this path, do some research to make sure you understand exactly how it works.

5. Only carry one or two credit cards in your wallet

   Have you ever witnessed a customer standing at a cash register whose card was rejected? What do they often do next? Fish into their wallet or purse for one more that might work! And if that’s a trick you rely on as well, it’s time to stop. You don’t want to be that person anymore, and the easiest way to stop being that person is to remove the temptation.

   Don’t carry around multiple credit cards. Keep your other cards out of sight, preferably in a safe or a safety-deposit box. Then make this new rule for paying off your credit cards faster: Any new charges you add to the one or two cards you now have must be paid off every month. Do not incur any further long-term bad debt.

So there you have it, my five-step credit card debt payoff plan for 2022. If you follow this plan exactly as I’ve described it, you may be able to pay off debt in a year. It could take longer, depending on how much debt you currently have and how resourceful you are with finding ways to expand your means, but it’s our proven method for paying off credit cards faster.

Once your debt is paid off, be sure to celebrate this accomplishment! It’s a big deal! You have sacrificed in ways that no one will ever understand. Pick something you enjoy doing, guilt-free: take your spouse out for a nice dinner and a movie or buy the pair of shoes you’ve been eyeing. But pay for it in cash and continue to follow steps one and two — the moment you waiver from those two steps, is the moment you start racking up more debt again.