How to Eliminate Credit Card Debt

Credit cards are a great convenience for those who use them wisely and can pay off in full the balance due each month. Unfortunately, this is not always possible for those who regularly make large, or multiple smaller purchases. These people can soon find themselves struggling with credit card debt.

Credit card interest rates vary from between approximately 10 to 30%, this being payable on the balance owing that is not paid off in the allocated interest free period. The higher the interest rate and the more often the card is used, the easier it is to fall deeply into debt. This is especially the case for people who only service the minimum payment on their credit card bill each month. The interest charge can then be far higher than the cost of the items purchased and we find ourselves still paying for them months or even years down the track.

Paying off credit card debt may not be easy, but by keeping a tight rein on further spending it can be done no matter how unlikely that may currently seem. The sooner you take control of your spending, the faster you will be debt free. Follow these basic steps and you will not only be able to sleep easier at night knowing you no longer owe money, you will have less interest to pay overall and you will improve your credit rating.

Action Plan

The first thing to do is either grab a pen and paper or open notepad on your computer and list all of your credit cards. Put the ones with the highest interest rate first, continuing on down to those with the lowest interest rates. Note the amount owing, interest rates payable and the minimum repayment required. All of this information can be found on your last credit card statement.

Add up and make a note off the total minimum monthly repayment. This is the least amount payable, but paying only the minimum will mean it will take a very long time to pay off your credit card debt and to do so you may have to totally stop making further charges on it. Charging more items will mean you are forever playing catch up. 

Once you know what your minium repayments are, work out how much more you can pay per month. The more you pay off the faster you will reduce and eventually eliminate your credit card debt, but every little bit helps. You may find you can only pay an extra $20 or $30 off the minimum repayment each month, and while that may not sound like a lot it will soon add up and start to reduce the balance owing.

Each month when a new payment is due, put the extra money you have allocated to pay the card at the top of the list and pay the minimum amount due on the other cards. Paying the extra money on the card with the highest interest charges will mean reducing faster the one that is costing you the most. The sooner you can pay this card off, the better off you will be financially. Once you have paid off the credit card at the top of your list, work your way down and pay extra on the second, then subsequent cards on your list.

Why it Works

The minimum credit card payment that falls due each month is calculated as a percentage of the total balance owed. As this balance decreases, so does the minimum required payment. For this reason, it can take a long time to pay off a seemingly small amount of money. By paying extra each month rather than the required minimum due, your repayments are staying constant and the extra money is going towards paying off the principal as well as the interest. By working on clearing the balance of the card with the highest interest rate first you will lower the total amount of interest you have to pay.

Additional Tips

While following the above method will help you reduce your credit card debt faster, there are some other things you can do that will also help.

Sometimes your credit card company will lower your interest rates, but this is not something they will customarily offer to do.  You will have to phone and ask them. If you are considered to be a good customer who has always paid on time and has a decent credit card score, your chance of the credit card company granting you a discounted rate will be higher.

A balance transfer is also something you may wish to investigate.  The savings on this can be considerable. Keeping in mind that a transfer fee will be payable, not all of the deals on offer will be worth it, but a saving of even 5 or 6% will make a difference over time. Ideally, pay the money you are saving off the balance owing on your cards.

Look for 0% interest deals. While some can still be found they are not always readily available, and sometimes the hidden fees involved outweigh the potential benefits so be sure to do your homework before signing up for a balance transfer.

Paying off credit card debt can be a long process. By curtailing unnecessary spending and paying any extra money you can on your cards you will be able to clear your credit card balance and be debt free faster.