Eight Steps to Reducing Credit Card Debt

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Carrying credit card debt is very costly, not only because you have to pay all of the interest charges, but also because your future income is committed to paying for your past purchases. Reducing your credit card debt allows you to keep more of your income, in addition to increasing your credit score and making it easier for you to borrow at low interest rates when you need to in the future.

Stop Using Cards

Nothing you do to pay down your credit card balances will help if you are adding more charges to the card each month than you pay off. Take your credit cards out of your wallet and commit to use only debit cards, checks and cash for purchases. If you cannot afford something right now, don't buy it.

Lower Interest Rates

Call each of your credit card companies and ask for a lower interest rate. Getting a lower rate causes more of your monthly payment to go toward actually paying down your balance instead of paying finance charges. Often companies will lower your rate by at least a percent or two if you ask, especially if you mention you're considering transferring the balance to a card with a lower rate.

Automate Minimum Payments

Late fees cost you money that you could be using to reduce your debt. To avoid getting hit with fees, set up automatic minimum payments from your checking account to each of your credit cards each month. This also saves you time because you don't have to make each of your payments individually.

Trim Your Spending

You will reduce your credit card balances faster if you pay more than the minimum each month. To do this, cut your spending in other areas of your budget. Choose a luxury item and commit to give it up and use all of that money for paying off debt. Options include unnecessary clothing purchases, lattes, eating out at restaurants, premium cable, alcohol, books, movies or going to live entertainment events.

Make Extra Payments

Every month, make an extra payment on the credit card with the highest interest rate. The larger the extra payment, the faster you will pay off that credit card. Applying the payment to the card with the highest interest rate maximizes your efforts because you are reducing the amount of interest you pay each month.

Use Windfalls

When you get a windfall, such as a bonus at work, tax refund or cash gift, apply that as an extra payment on your credit card. You probably weren't expecting the money anyway, so you aren't really losing anything. If you can't bear to part with it, keep a small percentage, maybe 10 percent, and use it to buy yourself something that will keep you motivated.

Track Your Progress

Help yourself see what you have accomplished by keeping track of your dwindling balances on the credit cards. Make a log and list your total amount of remaining debt each month or each quarter, depending on how frequently you need to see progress. This can help motivate you to continue.

Race a Friend

Trimming your budget and paying money you don't have to on your credit cards is a lot more fun when you do it with a friend. If you are competitive-minded, make it a game to see who can put more of his income toward paying off debt or who can get out of debt first. Check in regularly to report progress and maybe share some of the best strategies you have found.