Retiring Gay, Part Two: Eliminate Your Credit Card Debt

This series, Retiring Gay, primarily considers the financial steps to successful retirement. However, preparing emotionally for retirement is equally important to a happy, fulfilling and successful retirement. Planning for retirement is your opportunity to reconsider day to day living. Insurance, investments, spending, savings, socializing, residence and many other considerations change. Reaching retirement with a well executed plan makes your transition to a post work life easier and more fulfilling.

A credit card used without knowledge or understanding can be financially deadly. When deftly wielded, it is a powerful tool and can be very useful; use a rewards card, charge everything you can to the card and the rewards pile up. Then pay the bill on the due date without interest.

There is only one rule about credit card interest; don't incur it. That's it, don't.

Credit card interest gets you nothing. You buy stuff you don't need without planning how to pay for it. Now you have credit card debt and interest that never seems to go away no matter how hard you try. That's their plan; card issuers want to keep the cash flowing from your pocket to theirs. Remember the one rule here: Don't.

Credit card debt reduction begins with spending reduction. It is virtually impossible to reduce debt concurrently with creating it. Resources that you have available for debt reduction are going to come from your spending reductions.

Define what you have available each month for credit card payments. Make a list of all the amounts you owe, the company you owe and the rates of interest you are paying on each. If you are lucky enough to have the option of transferring balances to lower rate accounts, this is a good place to start. Anything you do to reduce the carrying cost of your credit card debt frees up resources to achieve debt elimination faster.

When your transfers are made and list complete put the list in the order of the most expensive interest first. Define the minimum payments required for each account. Deduct this amount from the total available for your debt reduction. The remaining available is paid on the most expensive card until that balance is zero. Paying off the most expensive card first, rather than paying the same amount to each card reduces the time necessary to pay off your total credit card balance and saves interest in the process.

After the first account is paid off apply the amount you have been paying to that account to the second most expensive account in addition to the minimum payment you had been making to the second most expensive account. After the second most expensive account is paid off, apply the amount you had been paying to that account, including the amount you paid to the first now paid off account to the next most expensive account, and so on until all your credit card account balances are zero.

As you pay off each card, destroy the card and notify the issuer that you want the account closed. Some will argue that you should not close the unused credit card accounts because it hurts your credit score. Maybe closing unused credit card accounts does hurt your credit score, though I do know that the closed credit card account will no longer be available for future debt. Don't tempt yourself.

When you are done with your debt reduction, you should keep one or two credit cards for travel and regular purchases with a commitment that you will charge nothing that you could not pay for in cash at the moment of purchase. In addition, the commitment must include paying the balance in full at the end of each billing cycle, no matter what. Remember rule number one.

As you head into retirement without credit card debt, you should take advantage of a good credit card, one that gives you something back, commonly known as a rewards card. There are all sorts and you can choose which is best for your needs; get something back for your spending, you have earned it.

Ric Reily is the author of two books, "Money Is The Root Of All - Skip The Debt Habit," and "Gregory's Hero." You can reach him at [email protected]