Yup you heard me right, I paid off $6500 of credit card debt over a 2 month period. Sounds kind of impossible unless you has some sort of nest egg or someone to loan you the money but the reality is I didn’t need any of that. Over the last two months I’ve had a plan in place to payoff all of my credit card debt once and for all, and in this article I’m going to share exactly how I did it.
Before I start let me just share with you the things I did not do in order to pay off this debt. First off I did not borrow any money from a lender, payday loan store, or even a friend. I did not rob it from my retirement or get it from some big emergency fund I had stashed away, because the truth is I don’t have much of an emergency fund right now.
So how in the world the world did I pay off all of my credit card debt so fast?
I Asked A Simple Question
Well it all started back around the end of April right after I started my budget on Mint.com, when I asked myself one simple question.
How Can I Payoff My Credit Cards Right Now?
From there I pulled up my budget and started throwing out all kinds of different ideas. I didn’t care if they were wrong or they were right, the only thing I was interested in was paying off all of my credit card debt right now.
Now I’ll be honest the idea of paying all of my credit cards off right away didn’t come to me immediately, it took several days of continuous thinking. Some ideas were really big from selling a vehicle to my new house to smaller ideas such as transferring all of my credit card debt to Lending Club Loan.
So how did I pay off all of my credit card debt over a 2 month period?
How I Paid Off My Credit Cards
The answer came to me when I started reviewing my life insurance policies, yes my life insurance policies. One thing I noticed about my life insurance was that it was a more expensive type of life insurance called a variable universal life insurance policy.
Now I’m not going to get into the specifics of the policy now but this type of policy has what’s known as a cash value account tied to it. These accounts accumulate money over time and depending where the interest rate is invested at can earn you some fairly attractive returns.
As it turns out I had a decent amount of money in these policies and if I were able to cash them out the money in those policies would easily pay off all of my credit card debt.
From there I decided to share the idea with my wife of cashing these policies out and switching to a cheaper type of policy that would be much more cost efficient and allow me to surrender the old policies.
After bringing the idea to my wife she and I agreed it was the best solution and the next day I called my insurance agent to get some quotes. A few months later I had the new policies in force and surrendered the old ones.
The Taxman Cometh
Now as easy and as good as all of this sounds one thing you need to keep in mind is that the taxman will want to get paid his portion as well. That means that any interest you earned on your money will be taxed at ordinary income so make sure you consult with your accountant before you attempt something like this.
In my case it was the obvious answer because the taxes are nothing compared to paying 24% interest payments each and every month. I can handle getting a little less at tax time if it means I won’t have to be making a minimum payment each and every month to the credit card companies.
How You Pay Off Your Credit Cards Right Now
In the end this plan has saved me years of payments, frustration, and interest, and I can tell you I’m in a much better situation now that I took the chance. Now it’s your turn, what could you do right now to payoff all of your credit card debt?
Here are the simple steps I took to make this happen.
- Ask Yourself The Question, How Can I Payoff My Credit Card Debt Right Now?
- List The Ideas. Next list the ideas. Grab a piece of paper and write down all of your ideas as they come to you and remember no idea is to stupid because you never know where it might lead you.
- Discuss It With Your Spouse. Third take some time to discuss the ideas with your spouse. Things will work a lot more smoothly when both of you are on the same page.
- Put A Plan In Place. Finally, pick the option that best suits you both and put a plan in place. Having a solid plan in place makes it much more likely that your plan will succeed.
Now that I’ve covered exactly what I did to pay off $6500 in credit card debt over the last two months I would like to hear your thoughts, was I wrong to pay off my credit card debt this way or do you think this was an awesome idea?
Also next week I’m going to be diving into how I switched my life insurance policies and what I switched to. So be on the lookout for that article next week. Till then I hope this helps you get the ideas flowing.
Whitney Sparks says
Great post and great job! I love several things that you said. I like how you brought up the “B” word – Budget. This is what saved us a lot of money. We were making $75K and realized that we had $1K extra a month when we started budgeting. It made all the difference for us. I also like how several times you stated that you talked with your wife about your decisions and you let her form her own. That was HUGE for us. Like you, nobody paid off our debt except for us! We caused the debt so it was only right that we pay it all back. We just had to be creative, like you, and figure out the fastest way to do that. Again, great post and best of luck to you and your wife!
Grayson @ Debt Roundup says
Congrats Chris on getting the credit cards paid off. That is quite the feeling. I didn’t even know those type of plans existed, so kudos for being able to use one to your advantage. Glad you were able to get into a cheaper plan as well.
Hi Whitney, thanks for stopping by Stumble Forward I really appreciate it. I think all it comes down to is that you keep looking for the right answers and not to give up until you find them. You are also right about the fact that we are responsible for our own debts. I never complained or blamed my financial issues on someone else, I just keep on looking for a solution.
Thanks Grayson, Variable Universal Life has been around since the 80’s but isn’t nearly as popular as term or whole life plans. All I can say is that it feels good to be debt free. In fact I only have my mortgage as my only debt which is the way I like it. Next week I plan to go more in depth about the insurance policies I had and what I switched to.
John S @ Frugal Rules says
Nice work Chris! I know how it can feel to be rid of the credit card debt and you must feel great. That’s also not to mention the fact of moving to what I am assuming is term coverage. Variable coverage is generally not worth it at all even though many sell it as an investment.
[email protected] says
That doesn’t sound like a bad plan to me as long as you replaced your old life insurance with better coverage!!!
You are exactly right John, I did switch to term. The rates were a lot more attractive and I didn’t have to build up a cash value account that I’m never going to use. Now that I have all my debts, except for my mortgage paid off now I can focus on building up my emergency fund again.
Good point Holly, before I switched I made sure I had the new plan in place. In fact I was able to go from a $300k policy to a $500k policy and pay less on monthly premiums.
Pauline @ Make Money Your Way says
Congrats! I think it was a good idea, getting a 24% return immediately is hard to get elsewhere. With that kind of interest, I would do anything possible to get rid of it asap.
Thanks Pauline. Cutting a 24% interest rate was no brainer in my book, besides that as tight as my budget has been the last few months I was only making minimum payments at best.
Canadian Budget Binder says
Congratulations on paying off your credit card debt! I think the most important thing I would do is make a plan. I think without a plan it’s difficult but if you have a spouse you both have to be on the same page so that’s very important.
Thanks Mr. CBB, I can totally agree with that. With both of use on the same page it makes it a lot easier for us to tackle the plan together which helped up get out of debt a lot faster.
Great illustration Chris, never thought of looking at life insurance as a way of pulling cash. Of course, I have a term life policy, but have been thinking of going to Universal Life, maybe it would be a good move. Thanks for the idea
I actually switched to a term policy and moved away from UL’s not because I think they are bad but more or less because the cash value account tide to the policy is like a savings account that I really never get to use. With my term policy I was able to get far more coverage and and pay a smaller premium. Thanks for the comment Jim.