For a lot of people, consumer credit card debt is the most crippling financial hurdle you can face. Whether you overspend on big-ticket items, have a medical emergency or just live beyond your means, credit card debt can get out of hand quickly.
There’s nothing so disheartening as paying the minimum amount due each month while watching the total amount due go up. It’s like taking one step forward and two steps back. You get further and further behind. Sooner or later, you either give up or become so desperate you resort to sketchy debt collection scammers who just make the situation worse.
But, you can get yourself out of credit card debt with a little help and a lot of determination. Just like addiction recovery, you have to be willing to face your situation, admit you need to fix it and change your behaviors. How?
The quick answer is you’ll need to spend less, earn more and/or ask for help. If you’re willing to go there, then here are 9 steps to successful debt reduction.
Take stock of your situation.
The first step to reducing your debt is to take out all the credit cards you own and use and gather up all the latest credit card bill statements you’ve received. Then make a list of all those cards that includes:
- The total outstanding balances on each,
- The minimum payment amounts due, and
- The interest rates they each charge
Number the list from the highest interest rate (#1) to the lowest interest rate.
Next, add up all the total balances you owe.
Then, add up all the minimum payments to get a monthly minimum payment total for all your cards.
Take a deep breath.
Now you have a picture of your whole credit card debt situation. It may seem scary, or even impossible. But close your eyes, take a breath and tell yourself you can do this. You can reduce and even get out of credit card debt. It may take a few years, but you can do it. Keep a positive outlook and get ready to take action.
Stop using your credit cards.
Except for one card (the one with the lowest interest rate) that you will keep in your wallet and only use for an emergency (we’re talking life or death here), stow the rest away in a safe place, out of sight, out of reach, out of mind. They no longer exist to you as “money” to use for buying things!
Ask for reduced interest rates.
Get out those monthly statements and call the 800-number for each credit card, explain that you are working hard to reduce your credit card balances and request a reduced interest rate. If the interest rate is 16%, ask for 12%. They may not do it, but you never know unless you ask.
Pay more than the minimum on one card at a time.
Continue to pay the minimum monthly payments on ALL your credit cards, but add a larger payment (as much as you possibly can) to the card with the highest interest rate (#1 on your list). This will reduce your most costly card balance faster. When that one is paid off, start making extra payments on the next highest rate card.
Set up a budget.
Now, it’s time to track your spending and stick to your budget. We’ve talked about budgeting before so, figure out your essential costs (mortgage/rent, utilities, food, transportation, etc., credit card payments) and cut back on non-essentials. Pay in cash or use your checking account’s debit card. Give yourself a monthly spending/saving goal and when you reach it, celebrate by spending a small amount on a treat for yourself – dessert or a latte. You are getting this done! Be happy.
Sell your stuff.
If you have things that you are willing to part with, sell them on eBay or through Craigslist. Use the extra cash to pay your monthly bills and to pay extra on your credit card debt. Selling stuff you don’t need is also a good way to see how you’ve spent your money in the past. It also reduces the need for storage or a bigger house to keep things in, reducing your costs even further.
Increase your income.
One of the best ways to get out of debt is to make more money. Look for ways to advance at work or apply to better paying jobs or get a second job. Working two or more jobs can add stress to your life, but if you can do it for a short amount of time to get ahead of those pesky minimum payments, it will pay off in the long run.
Connect with a support group.
Sometimes getting through difficult things is easier when you can talk with others who are sharing your experience. Or, if you are just not getting ahead of the debt and need some extra help figuring out how to pay those bills, finding a trustworthy resource can be the boost you need. The National Foundation for Credit Counseling is a reputable non-profit that can help you connect with other people going through debt issues and with counselors who can help you set up a debt management plan. There are a lot of debt management scams out there, so be careful who you ask for help.
Watch out for scams and bad deals.
Finally, you may hear about other ways to reduce your debt, but many of them are risky. Transferring balances from one credit card to another can be costly with hidden fees, so it isn’t the best option for consolidating debt unless the new card has a significantly lower interest rate and low fees. Taking out a loan to pay off debt can work if the loan has a low interest rate, but if you have bad credit already, getting a loan is unlikely. Check all the fine print on personal loans. Be sure you don’t get yourself into a situation where you have to make a big balloon payment down the road. Borrowing against a mortgage isn’t going to help you with your mortgage or your debt, so cross that one off.
Reducing your credit card debt will take time, creativity and a lot of effort on your part. But, you can do it. Stay positive, set goals, be willing to cut back on spending and create new, healthy financial habits. You’ll sleep better at night and wake up to a world of new possibilities in the morning.