Tips for Reducing Credit Card Debt

Personal debt has been mounting for many people around the world and the roller coaster never seems to stop. So many people get their bills and pay the minimums and don’t even seem to stop and think about the hole they are digging. I won’t say that I am any different, in that I have gotten myself into a position where I was throwing my hands into the air and trying to figure out a way to get out of the mess.

You need to objectively look at where you are at and how you got there. Are you living beyond your means or has it just been convenient to use cards and things have just gotten a bit out of control? Are there expenses you could eliminate in your life? Do you really need that second car or the snow-mobile?

I am not advocating giving up the things that make your life more enjoyable, far from it. The pleasures you get in life are the things that make life worth living. Could I say give up your weekends and get a second job to pay down your debt? Sure, but where would that leave you in life? You need to have balance to stay sane. Might you need a second job if things really are out of control? Perhaps for a little while, that one is for you to judge. Maybe getting a second job, for a finite period would make this process go much quicker, but most people can take a few simple steps and reduce their debt.

First, you need to assess your situation. Credit companies rarely let people get totally out of their debt ratio. What this means is that you do have the means to take care of your debt, it’s just a matter of re-allocating your funds. How do we do that?

First let’s look at your debt the way credit companies do. They determine how deeply you can dig and still manage to pay them.  Then they set the limit of the hole they will allow. So, if between all of your cards you have a $15,000 hole and you are at the bottom of it with no ladder in sight. What can you do?
Set up a spreadsheet, if you are computer savvy, or just write this out on a sheet of paper. One column is the name of the credit company, one column is the amount you owe, one column is the minimum payment and one column is the interest you are paying. Have the last column open. So what you have looks something like this:

You have been trying to pay off the cards early and your strategy was to add an extra $50 to each monthly payment. This has been stressing you out and actually some months you’ve had to put the groceries on the Mastercard because you were running low on money. This is not the best way to go about this. Instead of trying to pay all of them off and not succeeding, let’s pay one off and go from there.

We are going to pay the Sears card off first, since it has the highest interest rate. We’ll pay all the other cards at the minimum. That $200 extra that was spread all over the place, is now going to go to the Sears card only. BUT to avoid the grocery crunch, we’re going to reduce that to $150. Add that to the $70 minimum, and the Sears payment is now $220. That payment is going to rip through the debt there in about 15 months. Next we will tackle the American Express. We will add the minimum $60 to the $220 we were paying on the Sears card and now the AMEX payment is $280. within less than eight months that debt will be gone. Then we will move to the MasterCard, doing the same thing, so the payment will be $430. (280 plus the 150)

The $5,000 will be gone in around 11 months. Then finally the VISA payment will be The $430 plus the $160: $590. Anytime you have any bonus money or ‘found cash’ you can add that to the [ayment to speed this process along. I added my tax returns and I was able to eliminate all my debt in four years following this plan. This may seem like a long time, but if you stick to paying minimums, the repayment period would be well over ten years!

The sooner you get started, the sooner the debt will be gone. And at the end that $590 in the example would then be money in your pocket or better yet in your investment account.