How to get out of credit card revolving debt in four steps
Revolving credit is the most expensive debt on the market. Here is how to stop the snowball, swap it for cheaper interest and pay the balance without blowing up again.
2 min read
Paying less than the full statement for one month is easy. Getting out is the problem: whatever is left rolls into revolving credit, at interest that can top ten percent a month. In a few months the debt doubles. These four steps get you out in the right order.
Step 1: stop feeding the debt
While the card is revolving, every new purchase becomes expensive debt. Put the card away, remove it from your apps and use debit or cash for as long as it takes. It sounds drastic, but it is the only way the balance starts to fall.
Step 2: find out the real size of the hole
Open the statement and separate three numbers: the revolving balance, the future installments already committed, and the interest charged this month. The first two add up to the debt; the third is what you pay every month just to keep it from growing.
Step 3: swap it for cheaper debt
Revolving credit is almost never the best way to carry a balance. Compare, in this order:
- Statement installment plan: offered by the issuer, at much lower interest than revolving.
- Personal loan: lower interest still, with fixed payments and an end date.
- Balance transfer: moving the debt to a lender that charges less.
The rule is simple: only swap if the new rate is lower and you can make the payment without revolving again.
Step 4: build an exit plan with a date
Decide how much the budget can take each month and work out how many months until the debt ends. Log the payment as a fixed expense and watch the balance fall. Seeing the end date turns the debt into a project.
In MyMoney the debt becomes a negative goal: you log each payment and see the remaining balance and the month it ends. When it is done, the same payment can become the deposit for your emergency fund.
Frequently asked questions
Is it worth using the emergency fund to clear revolving debt?
Usually yes: no safe investment earns anywhere near what revolving credit charges. Keep a minimum for the next surprise and use the rest to pay it off.
Does negotiating with the bank work?
More often than people think. Call, say you want to settle, and ask for an interest discount or a better installment plan.
Should I cancel the card afterwards?
No need. Lower the limit to something the budget can handle and only use it again once you have paid the full statement three months in a row.
