How to Consolidate & Lower Credit Card Debt

The recession and financial crisis of 2008 was an eye-opening experience for all credit card holders in the United States. Average Americans finally saw how detrimental it is to hold too much debt as credit tightens and credit card bills increase. Consolidating and lowering credit card debt should be a top goal for debt holders. Paying down debt is usually difficult, but it definitely can be done.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Spreadsheet program
• Scissors

1. Lay all of your credit cards out on a table. Grab your scissors and cut up all of the credit cards. Consolidating and lowering credit card debt first requires that you stop using the source of the debt.

2. Use a balance transfer to consolidate all of your credit card balances to the card with the lowest rate (that is, if you have the credit available on that one card). Then focus on paying down that one card.

3. If you have a FICO score of 620 or better (according to CNN Money, a FICO score of 620 or better gives you a better chance of being granted credit), apply for a new credit card that has a low introductory rate. But do this only if you are going to instantly consolidate your other balances to this new card, and cut the card up immediately as you did with the others.

4. Open a spreadsheet program and list all of your bills with the amounts in the next column. This will be your crude budget plan. Seeing things on paper or on screen helps.

5. Multiply your consolidated minimum monthly credit card payment by at least 5 percent, and then add that amount to your minimum payment. Pay this each month to lower your total credit card debt more aggressively. Raise that percentage depending on your income level. Play with the numbers on your spreadsheet and total everything up to find out exactly how much you will need to pay each month.

6. Cut unneeded items out of your budget, such as expensive coffees, shopping sprees, nights out at the club, eating out and name-brand foods. Be thrifty and proud of it. Put any money you save toward paying down your credit card balance.

7. Make your debt payments on time every month as a priority, and monitor your budget plan every week to make sure that you are staying on track with your goals and keeping up with bill payments.

Tips & Warnings

• Even if you are denied for a new credit card or consolidation loan at a lower rate, you should still commit yourself to paying down your debt aggressively by paying at least 5 percent over the minimum payment each month. If you have memorized your credit card numbers by heart, call your credit card companies, report your card lost or stolen to get a new card, then cut it up immediately upon receipt. This way you won't be tempted to use them online.
• The 2008 financial crisis caused banks to be tighter with their lending practices; be prepared for a denial even if your credit score meets or exceeds standards. If you have an excessive amount of debt and are close to maxing out your cards, it may be worthwhile to look into debt management plans. Don't miss a payment; be meticulous about your bills paying each month.

Resources

• CNN: Debunking Credit-Score Myths