By: Jeena Cho

I often meet with people who spend months or years peeling the debt Band-Aid off millimeters at a time instead of yanking it off at once. Instead of making concrete plans to either repay the debt, settle, or file for bankruptcy, they go on extending the pain and the inevitable.

Here’s the problem with credit card debt. It enables you to live beyond your means. Repaying the debt requires 1. stop using your credit card and 2. scale back your spending to create disposable income. The difficulty is that in order to repay $1 borrowed requires you to earn approximately $2 to pay taxes and all the associated costs of earning the money (e.g., transportation, clothing, day care, lunches, etc.) Therefore, you not only have the feeling of being deprived when you stop charging expenses on the card, but having to live with a lot less money when you start to repay it.

Here’s an example.

John has $30,000 in credit card debt at 18% interest. Assuming his monthly minimum payment is interest + 1% of the balance, his payment would be $750. Assuming he doesn’t make any additional purchases, his monthly repayment amount would decrease slightly as follows.

Mo Min P/ment Interest Principal Remaining Balance

1 $750.00 $450.00 $300.00 $29700.00

2 $742.50 $445.50 $297.00 $29403.50

3 $735.09 $441.05 $294.04 $29109.91

4 $727.75 $436.65 $291.10 $28819.25

5 $720.48 $432.29 $288.19 $28531.52

6 $713.29 $427.97 $285.32 $28245.71

7 $706.15 $423.69 $282.46 $27962.85

8 $699.07 $419.44 $279.63 $27682.93

9 $692.07 $415.24 $276.83 $27405.93

10 $685.15 $411.09 $274.06 $27131.85

11 $678.30 $406.98 $271.32 $26860.70

12 $671.52 $402.91 $268.61 $26592.48

Here is the danger. By making the minimum payments, it would take you 451 months or 37.5 years to repay this debt in full. You’d also end up paying $44,416.16 in interest! Also, since the monthly minimum payments decrease, the temptation is there to charge more on the cards.

Now, let’s suppose you made a plan to repay all of your debt in 5 years. Your repayment amount isn’t that much different than the minimum payment amount at $761.80 per month for 60 payments. So, instead of taking almost 38 years to repay the debt, you can be done in 5 years.

Some expenses you may consider cutting or decreasing includes:

1. Cable, or other monthly/annual subscriptions
2. Dining out - lunch and dinner
3. Grocery bills - find cheaper food
4. Pet expenses
5. Clothing, shoes, purses, jewelry, etc.
6. Storage units
7. Travel expenses

The important thing to realize is that for many people in overwhelming debt, no amount of tightening the belt, and trimming all the expenses will free up enough money to repay the debt within a reasonable amount of time. If you fall into this camp, it’s best to realize this sooner rather than later. What’s the point of paying $750 per month for years in minimum payments since it does almost nothing to reduce the principal balance?

There are few things that frustrate me more than meeting someone who has spent so much time trying to avoid the big “ouch” of ripping off the debt Band-Aid quickly that they suffer so much more in the long term. So, my message is this. If you are determined to avoid bankruptcy, make a concrete plan to repay your debt as soon as you possibly can. This will save you tens of thousands in interest alone. Also, know your own situation enough to know that repaying is simply not an option.

In other words, leave the band-aid on and heal, or just rip it off. Stop torturing yourself.

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