5 Tips to Pay Off Credit Card Debt

by Jason on March 25, 2010


This economic recession has been a good thing for many people even though it’s been hard to go through.  Many folks are looking for ways to pay off credit card debt, become debt-free and start saving more, which is a great thing.

It can be a little overwhelming if you’ve been thinking about developing a debt reduction plan. 

It’s important to remember that eliminating credit card debt or getting out of debt period is always simple, but rarely – if ever – easy.

So, what should you do if you want to get on the path to debt freedom?  Take a look at these steps:

Take Inventory of Your Current Situation

Gather each credit card statement and write down the name of the card, the balance, interest rate, minimum payment due and the amount you are currently paying toward that debt.

If you’re married, this should be done with your spouse.  After all, managing your finances is a joint venture

You would be amazed at how many couples I come across that do not know that the other one has credit card debt or are unaware at how bad the problem is.

Stop Over-Spending

Most financial plans start with this piece of advice.  If there’s one thing you must do to get ahead financially it’s to spend less than you make or make more than you spend. 

I tend to focus on expenses first because it’s often easier to cut back than to make more money.  Making more money can be done, but requires a little more time and energy. 

Don’t miss another post!  Get Redeeming Riches delivered straight to your inbox!

Call to Negotiate Your Credit Card Debt

I am amazed at how often this is overlooked. Many companies are willing to work with you if you approach them and let them know that you are wanting to pay off your debt, especially in this economy, where many people are not paying their bills at all. 

Depending on your history with them, you might be able to negotiate lower rates and better terms. 

I suggest calling your card company and be honest with them. I would ask for a manager right away or an account closing specialist so that you get straight to the decision-maker that can help you.

Let them know your situation and ask them if they can reduce the interest rate for you.

If they are unwilling to help you, get transferred to the account closing specialist and let them know that you will transfer the balance to another company if they cannot work with you.  

You should be prepared to have some balance transfer offers in hand to follow through on this and consolidate your credit card debt as well.  You’ll probably want to compare credit cards to find which one has the best rates.

Snowball the Debt

Some people believe you should pay off your highest interest card first. I tend to disagree.

I think snowballing your debt is more of a confidence builder and can start some fast momentum towards getting you out of debt.

According to Dave Ramsey the best way to knock out debt is to get some quick wins under your belt because “personal finance is 20% head knowledge and 80% behavior!”

The first step in snowballing your debt is to pay minimum payments on all your credit cards except the one with the lowest balance.

You pay as much as you can on that amount until that debt is gone and then you take whatever that payment was and apply that towards the next smallest balance.

Each time you pay off a debt, apply that payment to the next smallest card and before you know it you will have created some great momentum and will see the progression at a more rapid pace.

Get Some Accountability

Getting out of credit card debt is not easy and it won’t happen over night. It will take discipline, sacrifice and patience, but the results will be worthwhile.

This is why you need to find someone who can keep you accountable for your goals.  Whether it be a financial coach, financial advisor, a friend or family member, a pastor at church – it doesn’t matter who so much as it does getting someone to do it.

They’ll encourage you when you want to give up and they’ll hold you to what you’ve committed to do.  

Thoughts?

What do you think of these tips?  Is there anything you’d suggest adding?

Related Posts

{ 14 comments… read them below or add one }

JoeTaxpayer March 25, 2010 at 8:32 am

I took at look at the cost of the debt snowball some time back, http://www.joetaxpayer.com/thinking-about-dave-ramsey/
I conclude that one should know the cost of their decision. I am “pro-high rate” and the example I offer may seem like a rigged result. Not really, as one should enter their own numbers, and if the cost is low, still decide to snowball.
Interesting to play with the numbers to see the impact of going in to anything like this blindly. I don’t know the profile of average credit card debt holders, my data is anecdotal. In my youth, I found that as I was gathering up my stack of cards, the low rate cards tended to carry a low limit. So I can see people out there with $10K owed at 20% rate on a single card with $10K. You get more than twice the bang for your buck hitting that high interest card. An oversimplification? Can’t say.
.-= JoeTaxpayer´s last blog ..A Thought on 15 vs 30 year Mortgages =-.

TheDebtHawk.com March 25, 2010 at 9:41 am

You raise a great point about negotiating with your credit card company. At least give them a call to see if they will reduce your interest rate.

I think that if any of your credit cards have a really high interest rate, you should pay that card off instead of the debt snowball. Like Joe said above, if I had a credit card with an interest rate above 20%, I would have to attack that card first.
.-= TheDebtHawk.com´s last blog ..No Perfect Plan For Getting Out Of Debt =-.

Jason March 25, 2010 at 1:08 pm

Joe – I don’t dispute the #’s and I don’t think the snowball is right for everyone. I do think however that for some people who have high debt on a high interest card and a small debt on a low interest card – knocking out that smaller debt can be a quick psychological feel good, which helps keep them motivated on the higher interest debt.

Jason March 25, 2010 at 1:09 pm

DebtHawk – I’m amazed that many people are too scared or perhaps just too lazy to call and see what happens. What’s the worst that could happen? They say no and you’re in the same spot. There’s no risk to calling.

Carlos March 25, 2010 at 2:13 pm

I really like your last point Jason! Having an accountability partner can make the difference for some of us getting out of debt! Having that person that can say “Your going to buy what? I thought you wanted to get out of debt!” We need someone who’s not tied to our money emotionally like we are! I also agree with you on the snowball piece. I like the “Lowest Balance” first strategy because it builds that momentum that we desperately need to keep something going!
.-= Carlos´s last blog ..How to use the Free Debt Reduction Snowball Calculator from Vertex42 =-.

Joe Plemon March 26, 2010 at 8:14 am

Good post Jason,
It seems in a discussion of getting rid of debt that we tend to zero in on what kind of snowball works, but reality is that the same plan doesn’t work for everyone. The key is changing behavior and getting radical about getting rid of the debt. And the bottom line is getting it done.

About calling credit card companies…yes! However, I have encountered people who, having lost their jobs, do not qualify for a card transfer and therefore have little or no negotiating power. Any thoughts on what they should do?
.-= Joe Plemon´s last blog ..Five Reasons Why a Penny Saved is Better Than a Penny Earned =-.

Jason March 26, 2010 at 7:09 pm

Joe – two great points! You are right in that a person’s ability to get out of debt isn’t squared soley on the shoulders of the snowball, but rather it is an intense to desire to change and a “do whatever it takes” mindset to knock out the debt.

Also, with regards to negotiating power you are right. It still doesn’t hurt to call and explain the story. Often we think that if we run away from the creditor things will be better off. But run toward them explain the situation and ask them for their help. It doesn’t always work, but it’s worth a try.

If there is no other alternatives (balance transfers, lower rates) the important thing is to do what you can, pay what you can and hope that things will turn around soon enough.

Things like Lending Club or Prosper Loans might be good alternatives.

Jason March 26, 2010 at 7:10 pm

Carlos – it’s amazing what having accountability or at least someone coaching us can do. It really does help take us to new levels and make smarter decisions.

Lynne March 28, 2010 at 11:05 am

I have a high balance for my business account and was never concerned with interest b/c it was low. 2 months ago I made 2 large payments, unfortunately the last payment hit just ONE day before the ‘next cycle.’ I didn’t realize this, so the next cycle showed my as not paying. My rate went immediately to 29%. I called, explained what had happened and they REFUSED to 1)move my payment into the right cycle or 2) show any mercy whatsoever.
They wanted that 29% on my high balance. I’m not seeing much willingness to work with consumers.

Prateek Panchal May 12, 2011 at 5:34 am

Loved the tips saying stop over spending, i say stop over pricing :D ……Cheers!!!
Credit card debt consolidation

Fast Credit Card May 13, 2011 at 8:51 am

Oh!…that’s great helpful, it’s so right to me!
Million thanks for the article,

 

Fast Credit Card June 3, 2011 at 1:08 am

This is the great blog, I’m reading them for a while,
thanks for the new posts!

Roby-111 July 21, 2011 at 11:52 pm

Sounds like a great idea. I will start tomorrow. Thanks.

Beth August 21, 2013 at 9:52 pm

Wow that was odd. I just wrote an really long comment
but after I clicked submit my comment didn’t show up. Grrrr… well I’m
not writing all that over again. Anyhow, just wanted to
say excellent blog!

Leave a Comment


three + = 5

{ 10 trackbacks }