How to Reduce Credit Card Debt?
by Mr Credit CardThis is a question I got from a reader : “Mr Credit Card, I have about $23,000 in credit card debt. How can I reduce my credit card debt? What are the steps that I have to take?“.
Well, the reader did not state how many credit cards he had and what rate he is paying on them, and what is the minimum payment on each card. But here is my general guideline on how to reduce credit card debt.
Write down exactly what you are spending on
Sounds elementary, but you first have to know why you have so much credit card debt. Are you spending too much on drinks in the evening? Are you making too many impulse purchases? Are you dining out too often? Know what you are spending…then
Cut out unnecessary spending
Once you have identified where you are overspending, the next step would be to cut back on these expenses and stop piling on new debt. The only way you can reduce debt is to stop adding on to your debt burden.
List your credit card debt by debt amount and also by APR
The next step is to know exactly how much you owe on each credit card and what the APR is on each card. Conventional wisdom says you should attempt to pay off the card with the highest APR. However, you may also choose to start by paying the card with the smallest balance to give you a psychological boost from seeing one credit card debt eliminated faster. The choice is yours, but develop a plan of attack.
Tighten your budget and find spare change to pay off your credit card debt
OK - you have now identified what you are spending and why you have got into credit card debt. The next step is to sacrifice some discretionary spending and get some extra cash to pay off your credit card debt. Once you have eliminated one credit card debt, use the extra cash you have to pay off the next card. Wash, rince and repeat until you have completely eliminated your credit card debt.
Extra Tips - Get a 0% APR Balance Transfer Credit Card
To aid in your debt reduction effort, you may want to consider checking out credit card balance transfer offers for debt reduction. There are cards that give you 0% offers for even as long as 12 to 15 months. Just make sure you get cards that do not charge any balance transfer fees. If your credit is not so good, there are also bad credit balance transfer credit cards.
Should you consider credit card consolidation loans?
If you can afford to budget in cash to pay off your credit card debt bit by bit, I would suggest against getting a credit card consolidation loan to pay off your debt. These loans are typically home equity loans with much lower rates. However, if you default on these loans, then you will lose your home. If you default on your credit card, you are not going to lose your home!
Stop using your credit card if necessary
Some might find that cutting up their credit cards will help reduce their spending on “stuff”. If you find that it helps, then there is no harm simply paying cash for everything and suffering a slight inconvenience.
November 3rd, 2007 at 3:02 pm
Nice article! That’s good advice. I think too many people just simply don’t have a budget and don’t track their spending. Unfortunately we have a culture that lacks fiscal discipline and responsibility. Buy now and pay later - that mindset has to be stopped!!
November 4th, 2007 at 12:17 am
I would also suggest that this individual call their credit card companies and request a lower interest rate. Sometimes, all you have to do is ask and you can end up paying much less interest.
November 13th, 2007 at 12:18 pm
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March 5th, 2008 at 11:30 pm
I agree with Nick’s comment - it never hurts to call your credit card companies and ask for a better rate. The worst they’ll say is no. If you really want to improve your chances of getting a better rate, do a little research first and find some other cards with lower rates. If you threaten to transfer your balance to a different card, your credit card company will probably be more interested in adjusting your rate. Less interest is still better than none, which is what they get if you transfer your balance to another card.
September 29th, 2008 at 3:37 pm
Your last point - ’stop using your credit card if neccessary’ - I would think if you are struggling with debt it would be 100% neccessary & one of the first things you would do.
You don’t have to actually cut up the card, maybe just keep it in a drawer somewhere. It’s when it is in you pocket that there is a temptation to use it! It’s always nice to have one available for an emergency!
I thought this article http://www.thinkmoney.com/money-guides/manage-your-debt.asp was also very useful. It’s not quite as comprehensive as yours but there are a few good tips that your readers might benefit from.
Thanks