Eliminate Credit Card Debt Without Bankruptcy

Even tasks as challenging as eliminating credit card debt can be boiled down to less than a dozen steps.  Notice I called them simple, but that doesn’t mean they are not difficult to follow through on.  It will take sheer determination, and a lot of sacrifice, to see all those credit card balances go to zero. However, eliminating credit card debt is one of the smartest financial moves you can make, and you can do it without filing for bankruptcy.

Before you even begin the steps below, there is one important task to complete.  Identify why you want to be debt free. Saying you want to be debt free is not enough, you must identify why you want to be debt free.  For me, it was because I was tired of not having options. Credit card debt forced me to stay in a bad job longer than I should have.  Debt forced me to skip out on opportunities because I just couldn’t afford to take the risk. Once you have identified your “why” move on to tackling the steps below.

Ten Steps To Eliminating Credit Card Debt Without Bankruptcy

1. Save three months of expenses in an emergency fund.  You may be asking yourself, “I thought this was a list of tips for getting out of credit card debt?”  It is, but to do so you must first create a cushion between you and the emergencies currently financed on your credit cards.  I didn’t take my own advice here when I first started my journey for debt freedom.  It wasn’t long before our home’s air conditioner broke, my car’s brakes began to fail and I was forced to run up debt to make repairs.  Back to square one. 

My second attempt began with saving up three months of expenses in a savings account.  Not $1,000, not $5,000, but three months worth of expenses; no more, no less.  This provided a buffer for future emergencies so I could avoid resorting to credit cards to finance the inevitable hiccups that happened along the way.

2. Take an inventory of your debt.  Once you have identified why you want to get out of credit card debt, and have saved an adequate emergency fund, you will need to list all of your credit card accounts.  Include the account number, current balance, interest rate, minimum payment, credit limit and contact number. This is a painful step, because most of us walk around not really knowing exactly how much we owe.  We have some idea, but it usually significantly less than the actual number.  Finding out the actual amount is kind of like having a bucket of ice water dumped on your head.

3. Contact each credit card issuer’s customer service number.  Take a deep breath, dial the number and walk through the verification procedures.  Then explain that you are in the process of consolidating cards and would like your account reviewed for a lower interest rate.  If they decline, ask to speak to a supervisor and repeat your pitch.  If they decline, thank them and hang up.  Resist the temptation to close the account at this point, no matter how angry they make you by refusing to lower your interest rate.  You will be calling back to cancel the credit card soon enough.

Now try to consolidate as much of the high interest debt to cards with lower interest rates.  You may have to visit the card issuer’s website you want to move money to, or contact their customer service department again to request a balance transfer.  Ask if there are any balance transfer fees associated, and ask to have them waived as a one-time courtesy.  Some banks will waive the fee, some won’t.

If a balance transfer is not available, consider a low-interest consolidation loan from a social lending site like Lending Club.  At this point we are interested in getting as much of your debt as possible to lower rate cards.

5. Get angry. I mean get angry at that credit card debt staring up at you.  At this point you are half way through the ten steps to paying off your credit card debt, but the trail ahead is about to get much steeper.  Take another look at your spreadsheet.  How many dreams have been put on hold by that number?  How many sleepless nights have you stayed awake worrying over that number?  Do not suppress your anger.  Harness it. Use it to get fired up about this plan to pay off your credit card debt, once and for all.

6. Cut up all but the card with the highest available credit.  You are deep in a hole, and it is time to stop digging.  Grab the sharpest pair of scissors you can find, and set up your cards in firing squad fashion.  Set aside the card with the highest available credit – you will keep this one in a sock drawer at home for emergencies until all your debts are paid off.  Cut up all the other cards, and be sure to clear their numbers from any online store you frequent.

7. Reorder your list of debts, putting the smallest debt at the top.  Put a big “#1” next to it.  Write its name in bold.  Highlight the amount.  Draw a big bulls-eye next to it.  Do whatever you have to do to put the focus squarely on that credit card account.  Imagine that card sweating under the lights in a police holding room.  It is guilty of robbing you of your dreams, and it is going down!

8. Throw every single dime you can find at debt #1. For this step I opened up another free checking account at my bank and tossed every bit of found money in it I could find.  Loose change, birthday and Christmas gifts, and proceeds from sales of my CD collection on eBay all qualify.  Consider taking on a part-time job, or starting a side hustle like mowing lawns or painting house numbers on neighbors’ curbs.  Every single extra penny goes into this account, and at the end of the week transfer the exact balance in that second account to the credit card with the lowest balance.  You may want to do it every other week, but don’t wait an entire month – you’ll pay slightly more in interest at the end of the billing cycle.  Some weeks it might only be an extra $17 payment, others may be as much as $85.  No amount is too small to getting you closer to getting out of debt.

9. Close your paid-off credit cards.
9a. If you are planning to buy a home, skip to step 9b
. When the balance reaches zero, and you have paid off the entire balance for that credit card, call the issuer again and close the account.  Immediately follow up that phone call with a letter to the issuer’s correspondence address asking that the account be closed, and ask for a written confirmation.  I know the card has sentimental value.  Maybe you opened it in college, or it has a picture of your dog on it.  Tough.  It has to go.  You just don’t need the headaches associated with carrying a wallet-full of credit cards.  Debit cards and cash spend just fine.  Repeat step 9a with all but your last credit card.  When your last credit card balance reaches zero, move on to step 10.

9b. This step is for those planning to buy a home after they are debt freeClosing a credit card account, even if it is paid off, can have a negative effect to your FICO score.  If you are considering applying for a mortgage in the near future, it is a good idea to leave your credit card accounts open, particularly accounts you have had open for many years.  Length of credit history is an important factor in calculating your score, and by closing older credit cards you are effectively lowering the average age of your active trade lines.  You have already cut up the card, canceled any automatic billing and removed it from your online shopping profiles, so just let it sit for now.

10. Put away that final credit card.  Presumably, this last credit card was the one with the highest credit limit and the best interest rate – that’s why it is last in the lineup.  If that is in fact the case, tuck the card away some place safe around your house.  Maybe stash it in a sock drawer, or locked away in a safe or lock box.  Wherever you decide to store it, just be sure it is not in your wallet, unless you are traveling and need to take it along for emergencies.  Keep this card around until your fully-funded emergency fund is in place, at which point you can consider yourself “self-insured” against future emergencies.  At this point you may decide to keep the card to score rewards points, or scrap it.  It’s up to you.  Me?  I say dump it.  Who needs the hassle?

If you are like me, you have probably been accumulating debt for years, but now it is time to stop.  Draw a line in the sand, and vow to never cross it again.  It is time to start living the rest of your life debt free.  Living without debt reminds me of being a kid again and pedaling your bicycle like crazy to climb that tall hill in your neighborhood.  Just when you think you can’t spin those pedals another turn you see the top of the hill.  You crest the top of the hill in complete exhaustion and then begin to descend the other side, wind blowing in your hair, the sun warming your face as you look up and smile.  That is the feeling of living debt free, and I can’t wait to coast down that hill again soon.  How about you?


  1. Excellent plan. I especially like that you point out that closing the cards can have a negative effect. But also watch out for the companies that have started closing inactive cards. If you keep an account open, buy something once a month and pay it off, so that the card company doesn’t close your account due to inactivity.

  2. Sound advice on the basics for people struggling under a mountain of credit card debt. Nice post.

  3. Excellent advice! Funny thing…I just posted today about putting away credit card debt! I liked your opening comment about “Why”..this can reveal alot about someone’s desire. If it’s not important to me, I won’t pursue it with the necessary passion to achieve the goal. It is so easy to become complacent with debt. Keep up the good writing.

  4. You’re offering some great advice. I only have one minor criticism on “Cut up all but the card with the highest available credit.”

    There are several different elements that go into making your FICO score, one is your credit history. If you close the card that you’ve had the longest because you have a newer card with lower interest and a higher credit limit, it can actually have a negative effect on your credit score:

    “An account that is open with a good history can stay on forever — it could stay on for 20 years. The bureaus will automatically remove (a closed account) in 10 years, but that could be removed sooner if that credit card issuer decides to remove it. Once it’s closed and paid off, that account then becomes inactive, and it’s not uncommon for the credit card issuer after a few years or even sooner to just delete that completely, just purge it from their records.” – Source: BankRate.com

    Once that older card’s history is removed from your credit report, you could see a drop in your FICO score.

  5. @K.S. Katz: To clarify, at that point (step 6) I am only advocating cutting up the cards themselves, not closing the accounts. That comes in step 9, where I mention the effects on FICO score. Thanks for your comments!

  6. Great advice! I particularly love your analogy to coasting down the hill/debt free.. like yourself, I can’t wait for that feeling!

  7. Glad you split number 9 into A and B points. We’re planning to pay off the few thousand in credit card debt right after our wedding April to have a clean slate and start house-hunting, and we know we don’t want to close any accounts and hurt our FICO scores.

  8. @RainyDaySaver: Miranda made a great point above. If you go this route, be sure to use the card(s) every few weeks or they’ll shut you down for inactivity. I would rotate a new card in my wallet once a month to charge something routine, like gasoline, and when you pay it off replace it with another card. Of course, this only works if you didn’t shred them in the earlier steps! If so, you can always ask for a replacement card.

  9. Great advice! May I add that your credit score affects more than just a mortgage? Insurance companies can also pull a version your credit score, and closing accounts may affect your score enough to increase the rate on your insurance.

    Don’t close the older accounts – but don’t keep the cards in your wallet either. 🙂 You never know how your credit score will affect you, or when you will need your score as high as possible.

  10. I like the post – but one question. Once you have saved your emergency fund and are working on paying off the debt. What do you do when the inevitable emergency comes? I assume you use the emergency fund to pay for it – but then do you stop the paying off in order to replenish the emergency fund? Try to do both – replenish and pay off? Keep paying off and hope for no more emegencys?

  11. FD,

    While I haven’t had credit card debt in a long time, it is easy to see the wisdom and simplicity of your approach. Surely, many will benefit from your advice, particularly in these difficult times.

    Step number one, i.e. getting to the “why” one wants to change a behavior is universal. It can be used to stimulate energy and motivation for any number of habits one may want to change and also for new habits one wants to acquire, i.e. exercise more. The “why” is definitely very important to recognize.

    Valuable post, FD.


  12. This is all decent, basic information except for 9. Even if you are not planning to buy a home now, you may want to do so in the future. Or lease a car, or buy furniture. Closing all your credit accounts can only hurt your score and make it harder to secure credit later.

    Cut ’em up, pay ’em off, but don’t close the accounts.

  13. I’ve paid off my credit cards, but I want to keep them active for the FICO score benefits. I use 1 card for regular purchases which are paid off every month – groceries, prescriptions, etc.

    The other 2 cards I use for 1 recurring charge each every month – 1 has the newspaper and the other has the alarm system. These are basic scheduled expenses which are paid off every month also.

    I use each card each month and pay it off – it works great if you are disciplined. After working my way out of debt this is not a problem for me. I only charge what I can pay for!

  14. FD,
    Excellent post. I do want to caution your readers about point #3. I’ve had the recent experience of contacting my credit card companies to ask for a lower rate and not only been refused, but had my credit limit reduced to just above the remaining balance (without them telling me) right after the call. I don’t care so much about the available credit, but, as you know, lowering the credit limit has the effect of driving up your debt/available credit numbers. This, of course, has a negative effect on the credit score.

    The most egregious of these has been BANK OF AMERICA. Rude customer service reps that lie, mislead, try to get you over to the “sales” department so you can open a “new” account, etc. Of course, this is the same company that is happy to take *my* tax dollars. I’m taking point #5 to heart: I’m angry at the debt, but I’m also mad at the companies themselves and the way they treat their “customers”. A significant portion of our debt was incurred dealing with family situations, not “discretionary” spending.

    We consumers need to remember that these companies aren’t there to help us; they are greedy and will take every dime they can from us as customers and from us as taxpayers.

  15. To mpnmom:
    In the event of an emergency, don’t fear b/c you have your emergency fund. And yes, after said emergency, first replenish that fund before returning to your debt payoff.

    To FD,
    My only critic is that you do not follow closely enough to Dave Ramseys plan. I know you open say you follow a modified plan, but to me it doesn’t make sense to advocate that someone who has credit card debt keep a credit card around while they are trying to learn to not use credit cards. I think your readers will find more success in removing all potential to increase credit card debt by cutting up all cards. But what about an emergency? Hence the emergency fund that you so wisely began with.

    To your readers:
    Have faith and get excited about being debt free! You can do it and it’s a wonderful way to live!

  16. (Sorry, after typing my comment I just realized this is a long post…)

    About using your cards for regular monthly bills (or bi-monthly bills)…

    Here’s an alternative method to keep a paid off card active: Make weekly or biweekly payments (or however frequently you get paid) to the card even though there’s a zero balance. They’ll record the payment as a credit on their books.

    Next, set up a bill payment through the credit card to zero out that balance at the end of the month. Basically you’re using your credit card as a sub-account debit card.

    Now, I realize that you wont make the interest you’d be earning through your savings account, but you’d probably be losing what, $0.08($50*(.02/12)) a month on a $50 monthly bill?

    You’d have two added benefits, one that you wont allow the credit card issuers to pull a fast one on you and charge you 10% interest on a balance you had on the card for 7 to 10 days – or even worse – you forget and get charged a full interest payment, plus penalty, plus universal default, plus jack up your rates to 30%… No thank you!

    Another added benefit is that this strategy has the potential to smooth your paycheck – rather than $50 once a month, if you get paid semi-monthly, that’s only $25 that can get sent to the credit card company on the day you get paid. You’d never feel the pinch in one pay period, but rather feel a slight decrease of your overall earnings over the entire year. If you happen to get paid bi-weekly, you’d end up with a credit, and have the rather appealing option of asking THEM to give YOU money! haha – now how’s that to turn the tables on them?!

    Here’s an example:

    I have a bill that gets paid out once every three months. I get paid semi-monthly, so I set up an automatic payment to the credit card company of $10 each pay check. Conveniently this bill is a static $60 quarterly bill, so through the credit card company I’ve already set up this bill to be paid once a quarter automatically – so when I get the bill I already know that it’s either paid, or the payment is on the way. It’s foolproof if you’re willing to give up a few cents of interest a month!

  17. I hate credit card debt. I hate that we let ourselves get into it in the first place. They should teach a required course in college entitled “Don’t Be Stupid: Don’t Use Your Credit Card to Pay for Worthless Crap.” I think it would have been very helpful for me to take a course like that.

    We’re slowly paying off our last credit card, but we have a high balance. It’s probably going to take us at least a year to pay it off entirely.

  18. Susanne – I agree about having a required course, but I think it should start in high school, with possibly a 2nd course in college.

    And give yourself credit, at least you figured it out and you’re paying off the debt. It took me awhile… but it was worth the effort

  19. O.K. F.D. I have a question. We have had 5 years of very bad luck with family medical problems. We lived on my husbands income (not very well). It got to the point all we could do was pay on current bills and medications and at times had to choose between medications or groceries. We let credit cards go into collections. In the past 2 months we are now current on all bills except the collections. We still don’t have a lot of extra money but I am working part time now. That is how we bacame current on bills. I now that if we want to buy a house we need to get our credit up so I will continue making the bill payments on time now. But I don’t know how I am going to work on the collections. I believe they will have to be paid off before we can buy a house. Whenever we have called the collections companies they are so mean and not willing to work with us. So I gave up calling them back and trying to get them to understand. So where do I go from here and how do I go about getting it done.
    Thank you!

  20. @Tara: Working off collections accounts while staying current with others is tough. If you have been in collections for a while, I recommend saving about half the amount you owe and then calling them up and offering 30% of your balance (leave yourself some negotiating room) as payment in full. Don’t send anything before you get it in writing, and don’t agree to a phone payment by giving up your bank account info. They will clean out your account.

  21. Good post; disagree with #6, though. Cut up ALL the cards so that there’s no temptation. If you have 3 months of living expenses in an emergency fund, you don’t need the CC, and not having them around helps develop the discipline needed to spend only the money you really have.

  22. Carole – If you think you cannot handle having a credit card without using it responsibly, you should certainly cut them all up.

    With some self-discipline it is possible to use a credit card and pay it off monthly, which will improve your credit rating over time.

    Some people use 1 card for necessities like gas & groceries then write a check for that amount, to save a place for the payment at the end of the month. Then you never spend more than you can pay.

    I simply track what I’ve spent on the card & stick to my monthly limit. I know I’ll be buying another house in a few years, so I want a GOOD credit rating.

  23. I moved back home after college because the job market was in the toliet. I ended up goofing off for months until my dad finally woke me up one day by swatting me with the want ads. . .

    Point taken!

  24. I have just paid off my credit card and totally recommend it!
    I am wondering though, to get my credit score up again is it worth using the card and then paying it off within days of each use? I know paying it off monthly is a good idea but is it just as good to pay it off within say 3 or 4 days each time or is that not worth doing? Any advice on that would be appreciated.

    Good tip from a friend: Don’t cut up your card but keep it in the loft so you have to really think about whether you need to use it!