Formula To Eliminate Credit Card Debt

This page offers a few scenarios for using my free loan spreadsheet to help you eliminate your debt. The formula for reducing debt is simple: 1. Do not spend more than you make; 2. Pay more on your debt than you owe; 3. Be patient.

You will need Excel 2000 or higher. Click here to download 'pFin - Loans and Credit Spreadsheet'(.zip). Unzip it anywhere on your PC.

For these scenarios I am going to assume you have $5000 on one card at a 15% interest rate. Further, the goal here is that after you are done walking through these scenarios that you will be able to apply everything I have covered to your own debt.

Never make the minimum payment

On our $5000 debt, if our card requires us to pay 4% of the balance each month and all we do is make the minimum payment it will take us 10 years to pay off the debt. We will have paid over $2100 in interest and we will still owe over $175 on the balance! It is even worse if the minimum payment is

Making the minimum payment to your credit card company makes you a slave to debt. Your credit card provider is a business and they are going to do everything they can to maximize their profits. They are going to do this because they have a responsbility to their shareholders to maximize their profits. They are making much more profit off you than they are off of folks like me. They are counting that you will only make the minimum payment.

Is it really your goal to increase your debt through your discretionary spending? In our $5000 example our first payment is $200. Our next payment due is only $194.50. After a year of making the minimum payment we are down to a minimum payment due of $147. We have paid the credit card company a little over $646 in interest. That is a lot of money you are giving away.

The Credit Card Trap

When all one does is look at the dollars involved the case could be made that things really do not look that bad. At the end of the 3rd year our payment is only $75.00. Of course this way of thinking assumes that you are not going to make any purchases on your credit card. Is this a realistic scenario?

What ends up happening is that you get into the mentality of "I can afford to spend x number of dollars" paying my credit card bill. In doing this you continue to use you credit cards in a way that keeps this monthly payment around that monthly minimum. Unfortunately such a strategy does not really work that well and the urge to buy keeps inching up both your minimum monthly as well as your balance.

The sound of interest sucking your income dry

In the first year you are paying $646 dollars in interest to this credit card. That translates into a lot of Starbucks, many nights out for dinner and a movie, a new smart phone, etc..., etc... . The reality is you are most likely going to continue charging on this credit card to maintain that $200.00 minimum monthly payment (or higher). So the annual interest is more like $750.00 a year with a duration of forever! Yes forever! The reality is that unless you start to payoff your debt you will stay in debt.


Credit cards are the ultimate form of slavery and bondage. At least with a loan their is a single point of purchase for goods and/or services. There is a beginning and end to the payment schedule. With credit cards there is no beginning and end. Many credit card lenders have raised the minimum monthly balance to 4%. It can still be lower than this. I could spend 50 pages getting into the details surrounding this but such a rabbit trail is not going to produce any good fruit for us.

Our goal is to reduce your debt to 0. Keep in mind that your card may be requiring you to pay less than 4% on your balance. The less you are paying on the balance each month the more you are paying in interest. If we change the 4% minimum monthly to 2% (which was not too long ago where every card company was at you can see the dramatic change.

If paying on a $5000.00 debt for 10 years costing you $4957.00 in interest and still only paying off 60% of the total debt does not make you sick to your stomach then I do not know what else I could possibly say to convince you that these lenders want to trap and enslave you.

Do Credit Cards have a purpose

Certainly, but you have to be careful. Credit cards are a great convenience when you are traveling. If  you have to travel on business let your company provide the plastic for you. If this is not an option you want to make sure you payoff your balance when it is due. You should never take a vacation on your credit cards! Have the money for your vacation in the bank. Immediately after you return home write the check and send it to the lender.

Credit cards can represent a quick line of credit (at a high price) in times of emergency. You really should have savings for these situations, but we realize how easy it is to your finances upside down. If you have to use a credit card for an emergency create a payout schedule. For instance, if you need to put $800 on your card to fix your car, plan to payoff the loan over some duration that your budget can absorb.

Making a consistent minimum payment

Scenario #1

If we go back to our first scenario. We owe $5000 on our credit card at 15% interest. Our monthly payment on this balance is $200. If we can afford to send the credit card company $200.00 the first month, then we can certainly afford this amount each month. By consistently making this payment we can payoff our debt in 30 months. You now have a date where you will owe nothing on this card.

You can still use your credit card as a convenience but the deal you make with youself is to payoff the purchases you make that month when the next bill is do.

Our spreadsheet allows you to quickly set up these schedules to payoff your debt. I feel so strongly about reducing debt that I decided to give this spreadsheet away for free.

Scenario #2

Okay, two and a half years is a long time for many of you. What is to prevent you from charging more debt on this card? Is there a way that can work for you without having to immediately cut up the card?

If you decide to payoff this debt off over a 5 year period it is going to cost you about $120 a month. Take the other $80 and start a savings account. This is going to become your emergency fund. Once it reaches a certain amount you can take that $80 and put it back into the budget to spend on items that you were previously charging on your credit cards.

Final Thoughts on becoming debt free...

Back in the early 90's my spouse and I fell into the credit card trap. We were a young couple barely making end meet. We had about $7000 in credit card debt on 4 cards. It took us 3 years to become credit card debt free. At the beginning it might not feel like you are making any progress. You are. Stay the course. We did and ee have been able to stay credit card debt free ever since. If we did it so can you.

Whether you have 1 or 10 credit cards you can apply the advice I have offered to your finances. It really does not matter how deep you have dug the hole for yourself. What matters is that you make the decision right now that you are going to start digging yourself out of your credit card debt. The choice is yours.