How to Create a Credit Card Debt Exit Plan

Credit card debt. It often starts small and manageable. You join a gym or buy a designer bag, but then…something goes wrong with the car, your best friend has an expensive destination wedding, or you go out to dinner a lot. When your bill comes, you're shocked. How did you accumulate all that credit card debt?

If this sounds familiar, you're not alone. Current credit card debt in the U.S. is over a trillion dollars, according to the Federal Reserve Bank of New York. Drilling down to per person numbers, the national average unpaid credit card balance stands at $7,279, Lending Tree reports. And a Bankrate survey reveals that 60% of Americans have carried a credit card balance for a year or more.

These numbers are concerning. But one of the biggest concerns is how carrying credit card debt can impact your choices and your future. Here are a couple of real-life examples. A few years ago, a friend wanted to leave her marketing job and go into teaching—a dream she'd had since graduating college. What stopped her? Her credit card debt. She'd gone so far down the debt rabbit hole she couldn't take a big pay cut. Another friend was about to get engaged, but her boyfriend balked until she paid down her credit card. In each instance, carrying credit card debt created unexpected problems for their future.

Credit is convenient and almost a necessity these days. But credit card debt often grows faster than we realize. The good news is you can reverse the situation. But you need a strategy.

Make a spreadsheet that lists each credit card you have (don't forget those department store cards). Include the current balance, interest rate, minimum payment, credit limit, available credit, and annual fee. This information can be found on your most current statement. A few things to keep in mind:

• The annual interest rate. If you haven't looked at it lately, it may shock you how much it's gone up since the Federal Reserve started raising interest rates. This also lists how much interest you've been charged if you haven't paid your balance in full.
• Your credit limit and available credit. Generally, you should aim to use less than 30% of your available credit to help prevent a dip in your credit score.
• Payment estimate. This shows how long it will take to pay off your balance if you only make minimum payments. Here's an example. Let's say you have a $5,000 balance, with a 20% interest rate, and you pay $200 a month. To pay off that balance, it would take almost 12 years and cost you $3,417 in interest! That new TV you purchased on Black Friday doesn't seem like such a great deal now.

When it comes to paying down credit card debt, there are a couple of options to consider. One is called the "avalanche" approach where you focus on the highest interest rate balances first. Put most of your money toward these cards, while paying the minimum on the others. This can help you pay off your debt faster—and save money in interest—but can also be discouraging since you won't have any big wins right away.

The second approach is called the "snowball." It focuses on paying off the lowest balances first. This can give you some quick wins in terms of completely paying off some cards faster to help you build momentum. The downside is that it may take you longer to pay off your total debt and cost more in interest.

Staying out of debt is all about tradeoffs. You decide not to buy something today so you can put your money toward something else in the future. What is that "something"? A special vacation? A home down payment? An interesting retirement? By keeping your debt in check now, you're giving yourself greater freedom of choice later. Think of it as making tradeoffs—not as deprivation, but as future abundance. 

Again, it's easier if you have a strategy. To me, this means having a spending plan. Start by taking a realistic look at where your money's going. Try a spending tracker to help you keep on top of what you're spending and why. Then decide what tradeoffs you need to make. Having a spending plan is freeing because it puts you in control.

Paying off debt may seem overwhelming at first, but here are some ideas to help you get started:

• Always pay more than the minimum.
• If you're having trouble paying, don't avoid your lenders. Contact them to discuss your situation.
• Once you've paid down your debt, make it a goal to pay off new balances by the end of each billing cycle.

Even the smallest steps now will add up. Mark your progress. Keep your future in focus. Need some extra motivation? Think of my friend who wanted to make a career change. She eventually paid off her credit card debt and became a teacher. Her only regret was that she didn't do it sooner.