New Year’s Resolution: Create a Credit Card Debt Action Plan

It’s that time of year again when people all around the world start to set new goals or resolutions for the upcoming year. We look for ways to improve our lives. Maybe that means losing weight. We might want to get a better-paying job or start a business. Or perhaps your New Year’s Resolution is to get out of credit card debt. If so, creating a credit card debt action plan could help you get moving in the right direction.

What is a Credit Card Debt Action Plan?

A credit card debt action plan is a simple financial roadmap that will help you figure out how much you should pay each month to get out of credit card debt in a specific amount of time. Creating them is very simple. A credit card calculator does all the work. Sticking to the plan is the hard part. Let’s start by crunching some numbers.

Using a Credit Card Calculator

A credit card calculator will let you input information like your current credit card balance and interest rates. You can then plug in different monthly payment amounts to find out how long it will take you to pay off that credit card debt (after interest is factored in).

Let’s use the FIDO credit card calculator as an example and assume you have $3500 in credit card debt at an interest rate of 19.99% (like the Qantas American Express Premium credit card). Using the calculator, we can determine that you would have to make the following monthly payments to pay off your debt in one year, two years, or three years.

1 year — Around $350 per month

2 years — Around $180 per month

3 years — Around $133 per month

That’s really all there is to creating a simple debt action plan — figuring out what you have to pay to meet your goal in a certain timeframe. Once you have this information, you can put it to use.

How to Act on Your Debt Action Plan

You now know what you would have to pay monthly if you wanted to pay off your credit card debt in one, two, or three years. The only other step involved in the planning is to decide which of those options you can afford. As you can see, there’s a much larger difference between paying off your credit card in one year versus two than the difference between taking two and three years.

Even if a three-year plan sounds more affordable, it could be a good idea to see if you can adjust other areas of your budget to come up with that additional $47 monthly. If you do, that’s an extra $180 per month you’ll have for other things after two years when you no longer have to commit it to paying off credit card debt.

How much you can pay, and for how long, are very personal decisions. What works for one person might not work for another. Also keep in mind that your credit card debt action plan isn’t a static document. It can be changed if necessary. If you suddenly have a larger influx of money, you can crunch the numbers again using your new balance as a base and find out how much to increase payments to pay off your debt that much faster.