Effective Ways to Reduce Credit Card Debt

Editorial Note:

One of the worst things about credit cards is credit card debt. It is expensive, and it can take years to claw your way out of it. Meanwhile, your credit suffers, affecting your ability to finance a car or rent an apartment. In some cases, your credit affects whether you get the job you want. Fortunately, we’ve found some ways to help you reduce credit card debt.

Pay At Least Minimum Amount On Each Debt

You should be paying at least the minimum amount on the credit card loan every month. It keeps your credit rating in good standing. The card company will report your account as delinquent if you don’t pay after 30 days. Not paying this minimum means your card company can issue a late fee or a penalty annual percentage rate (APR). Yet, minimum payments are usually so small that it just about covers the interest on your balance. If you can afford to pay a little more, that’s even better. Put that extra money towards the card with the highest interest rate first. When that debt is cleared, put your extra money towards the next highest rate.

To calculate your minimum payment, a credit card company will use the following formula. For a statement balance of $11,000 and a flat fee of 2% (0.02)

Minimum Balance Payment = Statement Balance x Flat Fee = $11,000 x 0.02 = $220

Or… you can use this handy Credit Card Minimum Payment Calculator. It can calculate the minimum monthly payment, and the number of months to pay off your debt. You’ll see you how much you are paying in interest, and how much this debt will really cost you. It even shows how every payment is broken up into interest and principal; and what your balance will be.

Ask For a Lower Interest Rate

Ask and you shall receive! Request a lower interest rate from your credit card company. Should that person say they can’t lower your interest rate, ask to speak to their supervisor. If your payment history on your credit card is good, you can use this as leverage in your request. The worst they can say is no; but if you are successful, you will save you money on interest. This will save you money on credit card debt.

Stop Using Your Credit Cards

Don’t do anything drastic, like cutting up your cards or put them in ice to freeze them. Just put your cards somewhere safe, but difficult to access. The idea is that the extra difficulties it will take to retrieve your card act as a deterrent that will discourage you from using it. You can retrieve your cards once your balance is zero. If you have credit cards stored in e-retailer accounts, delete them. Making it harder to use your credit cards offline and online should help reduce the impulse to buy things.

Manage Credit Card Debt

Consider a Consolidation Loan

You may be able to group all your debt together into a low-interest loan, effectively reducing your interest rate. The two most common options are a home-equity loan and a home equity line of credit. If you are eligible, you must stop accumulating debt while paying off the new loan. You should carefully consider if this loan is right for you: defaulting on this loan means possibly losing your home.

Trim Your Budget

Take a look at what got you into trouble in the first place: your spending. Where is your money going? Can you reduce your spending in one or more ways? The money you save by reducing your spending can be used to pay off more debt.

Talk To a Professional

When all else fails, talk to a certified financial planner or credit counselor. Most people think that a financial professional is expensive. This is false. A number of non-profit agencies provide access to financial professionals who may be low cost or free. Work with one to figure out a reasonable plan that will lower your credit card debt over time. Your financial advisor must be able to explain the complexities of your financial situation so that you can understand it. If your financial professional doesn’t do this, get a new one.

In a case where your debt seems impossible to pay off completely, you may consider bankruptcy as an option. However, bankruptcy has serious, long-term consequences. Consult your financial professional see if it is the best option for you.

Be Patient

With a little work, some time, and some patience, you’ll soon be debt free. If you want to see how long it will take you to pay off your current credit card debt, you should check out the Credit Card Payment Calculator.

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