Credit Card Debt Reduction Strategy

Are you someone who hides from your credit card bills each month? Do you even know how much you your total debt is? You don't have to be afraid of it; with planning, you can tackle any size debt and pay off those cards!

The first step is the hardest. You need to sit down with all of your statements and tally up your debts. Next, take a sheet of paper and list each credit card balance, credit card interest rate, minimum payment and balance owed. If your credit is good, contact the credit card companies and ask them if you can have a lower interest rate. Tell them you are going to switch cards if you don't get a lower rate. Getting the lowest rate possible gives you the greatest chance at paying them down quickly.

If at all possible, get a 0% interest rate card to transfer balances with. However, do your homework. Don't get a card that has a high fee for balance transfers, as that can negate your interest savings. Also check to see how long the 0% is good for. Sometimes that is an introductory rate that only lasts 3 or 4 months. You want 0% for at least a year. And make sure that the rate the card will revert to after the introductory period is lower than the cards you are transferring from. In case you should happen to miss a payment, your account will automatically revert to the standard rate, so get it as low as possible.

After you have tried to get lower rates, then you will put the cards in order of credit card interest rate, with the highest interest rate being at the top of the list. This will be the order of payment you will be working on.

Pay the minimum payment on all the other cards for now. Then pay at least $10 over the minimum payment on the card with the highest interest rate. And much more if you can afford to. Why do this? Compound interest! This is how credit card companies make a lot of their money. As your balance drops, your minimum payment drops. And interest compounds monthly based on your balance - which includes the interest your account already accrued! So you are paying interest upon interest repeatedly. That's why it seems to take forever to get out of credit card debt. For example, if you have a credit card at 15% interest with a $3000 balance, making only the minimum payment each month will take you 216 months to pay off. And you will have accrued $2757 in interest charges. That is almost double the original purchase price!

Once you have the first card paid off, take the full amount that you were paying each month for that card and add that to your payment for the card with the second highest interest rate, while still paying the minimum payment on the other cards.

Do this with each subsequent card. You will find that as you proceed this way, the cards will be paid off faster and faster. The reason is the lower interest rates on the other cards and the fact that your payment itself will be larger and larger. Once you have your debt paid off, close all but one or two cards for emergency purposes only and revel in the feeling of being debt free!