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Handling Credit Card Debt
Last week, the idea or deciding to pay off debt or save for a full emergency fund came up. It seemed that having a barebones emergency fund to keep you afloat while you payoff your high interest debts (i.e. credit cards). According to Nellie Mae, the average college student has $2200 in credit card debt. We’ll use it as an example for today.
Using a Debt Snowball to Pay Down Credit Cards
We have a student (we’ll call him Ed) who has $2220 on two credit cards. Ed saved $500 from his semester’s refund for his barebones savings. He got a 2nd job delivering pizza, which gives him an extra $50/week to play with. This money is devoted to paying off his credit card debts.
Ed puts $150 on the higher interest card and $50 on the other (that’s minimum payment). Let’s see how his net worth changes.
|Account||Savings||Credit Card 1||Credit Card 2||Net Worth|
Ed is very excited with this plan. He notices he can be debt free from credit cards in 13 months. He had this card for the past 3 years and now he can finally be in control of his debt. Plus he now has an extra $200 month he can use to save. An important fact that hits him is how much money he could have had if he didn’t have credit card debt. He uses it as motivation not to carry a balance again.
Has anybody had success with paying off their credit card debt? Any tip is that they can offer those in the trenches?
Photo Credit: edwin11 79