How to Eliminate Credit Card Debt

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If you’re trying to eliminate credit card debt, I’m sure you already know it’s a daunting task. But all you need for success is a solid plan of action.

You’ll also need persistence and self-discipline to get rid of your credit card debt. But once you see your balances start to shrink, you’ll get a rush of excitement that will help you stay motivated.

Here’s what we’ll cover ahead:

Whatever you do, don’t skip this step. It’s easy to fall into a state of denial if you have credit card debt. Or you might vaguely be aware that you spent too much on restaurants last month, but unless you do a little digging to find out why you had takeout delivered 27 times, you might repeat the same mistake.

So take a deep breath, and think about what led to your debt. For example, sometimes people get into debt because they don’t have a budget. This often results in overspending. Even if you have a budget but don’t track spending, you’re unlikely to stay under budget because you aren’t aware of how much you’ve spent.

Here’s the deal: You have to create a budget and track spending. If you don’t, you’ll get into credit card debt. And credit card debt is toxic.

There are two different types of debt: good debt and bad debt. With a mortgage, you’re making payments on an investment that hopefully will gain in value as time goes by. A mortgage is an example of a good debt because you have a chance to increase your net worth.

But credit card debt is an example of bad debt. If you always pay your bill in full during the grace period, you’ll get to enjoy an interest-free loan. But if you carry a balance, you end up losing money. Compound interest makes your debt get bigger and bigger. If you only make minimum payments, the debt will grow even faster.

To make matters worse, having high balances on credit cards makes your credit score go down. You have a credit utilization factor, which is the amount of credit you’ve used compared with the amount of credit you have available. For example, if you have a $1,500 credit limit and you have a balance of $1,000, your ratio is a whopping 67% (1,000/1,500).

You should never have a ratio of more than 30% to maintain a good FICO score. That would be a balance, in this example, of no more than $500. But to really boost your score, keep the ratio to less than 10%.

So, you can see how credit card debt can lower your score. Once your debt starts going down, you’ll see your score rise. But this assumes that you stopped using credit cards while paying down debt. My debt-reduction rule: Do not add to your debt while you’re trying to get rid of it.

Time for the fun part! Gather your financial records, whether on paper or online, and get ready to take action.

For each credit card account, make a list of the card name, the annual percentage rate and the balance. Below, I’ll explain each strategy and give tips for helping you choose the right one:

If you still have very good credit, you might qualify for a balance transfer card. These cards offer a 0% introductory APR for a period of time, such as 12 to 18 months. This gives you a chance to pay off your debt while paying no interest.

But if you don’t have a high enough FICO score to qualify, then you can consider a debt consolidation loan.

This is a good idea if you need to combine multiple credit card balances or different types of debt into one installment loan. You won’t get a 0% interest rate, unfortunately, but you’re likely to get a rate that’s lower than the APRs on your credit cards.

This is considered a personal loan, and if you have fairly good credit, you might get approved. Do shop around, though, and get the best rate you can qualify for.

If you decide to tackle your debt on your own, one option is called the debt avalanche. You pay off your credit card balances from the highest APR to the lowest APR. The best feature of this method is that you save the most money because you’re getting rid of high-APR debt first.

What if you need to get a quick psychological hit to stay motivated? Then try the debt snowball method. Here, you pay off your balances from the smallest debt to the largest debt. You’ll pay more interest this way, so that’s a significant weakness in this approach.

If you want the best of both worlds, check out my own creation, the debt blizzard. Start out using the snowball method, and get an adrenaline boost quickly. Then switch to the avalanche to save more money.

If things are so bad that you don’t believe you can ever climb over your mountain of debt, consider reaching out for help.

You can find an accredited credit counseling agency through the National Foundation for Credit Counseling. You’ll get a free phone session, in most cases, to help you choose the best debt-reduction option.

Simply asking for help will not impact your credit score. Now, if you eventually decide to go into a debt management plan or file bankruptcy, your score will go down.

But the most important thing to do is to stop the madness. You’ll get back on your feet, and your credit score will recover in time.



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