Frugalnomics

Credit card debt is a leading cause of financial troubles for the average American family, and who can blame them? Credit cards companies, like all businesses, need to make money, and making that money requires working men and women to have debt. You can get control of your credit card debt, though, and it truly is easier than you might think.

Here’s how you do it:

1 – No More Debt

Stop adding to the debt. You will never be able to make your situation better if you continue to contribute more debt to the already considerable amount. Remember also that big debts often sneak up as a sum of many small expenses, like a trip to the coffee shop or gas station.

There are many tricks to help you stop spending with plastic. Cut up the cards, leave them at home, or freeze them in a bag of water: whatever you do, make it difficult to use them for impulse buys.

Above all, do not look at an “available balance” as an “available income.” Instead look at it as the possibility for losing your house, car, and ability to put food on the table. It’s OK to have and use credit cards, but they need to be managed in the proper perspective.

2 – Identify Existing Debt

Assess your debt situation. Do not just look at your current statement, contact the credit company and determine the full extent of your debt. How much do you owe total? What interest rates are being applied to that balance?

Remember that some purchases or cash advances are charged at a higher rate than the standard rate on your card. The goal here is to get an accurate picture of how much you owe, which cards have the highest interest rates, and how long it will take to pay of the credit with your available income.

3 – Set Debt Reduction Goals

Set reasonable goals. You cannot make your debt go away overnight. It always takes much longer to pay back debt than it took to gain it. Set yourself a goal of paying off all of your debt that is far enough away that you don’t get discouraged when you are unable to meet it, but soon enough to keep you motivated. Set milestones along the way to keep you going!

4 – Consolidate Your Debt

Consolidate at lower interest rates. With the information gathered from the previous step, try to consolidate your high interest debts on your low interest accounts. Be extra careful in this step, though. Many credit cards and other services charge high fees for debt consolidation, so make sure you read the fine print before getting into a consolidation agreement.

There are legitimate agencies out there that will consolidate your debt and not try to rob you, but remember, every service needs to make money, so you’re adding one more set of hands reaching into your wallet.

Also do not open a new credit account for consolidation; this just gives you a larger amount of available debt. If you get a good offer for a new credit card offering a low interest rate for consolidating your other debts, contact your other lenders and ask them to match the rate of the new card. Banks have to stay competitive, and they definitely don’t want to lose you to someone else.

5 – How Much Can You Pay?

Determine how much money you can pay toward credit cards each month. This must be an amount greater than the sum of all of your minimum payments. Can’t seem to get an amount that high? Make a smaller commitment that adds up. Maybe you’ll start making coffee at home for less than $1.00 and apply the extra $2-5.00 the cup at Starbucks costs you every day toward your debt. Continue paying that same amount until all debts are paid off: it will take a while for the first debt, but each successive debt will go away quicker in a snowball effect.

6 – Starting Small

Start small. Do you have a debt that is under $1,000? Pay off that debt first, it will provide you with a quick accomplishment and motivation to keep going. If you do not have a debt under $1,000, go on to the next step.

7 – Pay Off High Interest Accounts

Pay higher interest accounts first. Apply the extra amount from step 3 to the accounts costing you the most in interest rates. Doing this saves you lots of money in the long run! Once the first debt is paid off continue paying the same amount toward your debts, but apply the entire extra amount to the next-highest interest account.

8 – Save for Emergencies

Plan for emergencies. Inevitably something will come up that requires extra money immediately. There may in fact be a reasonable reason to pull out the plastic and charge the expense, but remember — no matter how long you have gone without using credit cards — that one use will open the door for you to get sucked back into spending money you don’t have. Be careful when you come across a situation where you must use that card!

Final Thoughts

If you are reading this article you have likely already made a decision to escape credit card debt, so I want to be the first to congratulate you on your new commitment! It is going to take patience, hard work, and sacrifices, but you will be much better off when you can finally say you are beholden to no one.