How to Pay Off High Credit Card Debt

Difficulty: Moderate

Instructions

Step 1

Decide this is something that you are willing to commit to and will stick with over the long haul. If you have significant debt there are no quick fix short term solutions but with effort you can clean up your credit card debt. Be honest with yourself first about what you are willing to do and then with any other involved parties. Lying to yourself or others will not make you successful. You have to find an honest way to commit to the process.
Step 2

The first step is discovering what you owe and this is done through the budgeting process. You need to identify all your debts and income in order to make this work. This again is where honesty is critical. You are past the point of being embarrassed or worried about what others may think. The time has come to put all the financial cards on the table.
Step 3

When creating your budget you first have to identify the income you currently have to work with right now. You may want to work on improving that later but work with what is guaranteed first. Budget the basic needs of food, clothing, shelter, and transportation. Basic means basic. If you are carrying significant credit card debt that you hope to reduce, you need to reduce your life style to reduce debt. Increasing income will help, but reduction of spending is key until the debt is gone.
Step 4

Once you have budgeted for the basics list everything else you are obligated to pay for by contract, then those things that fall into the want category. Consider which contractual items you can still afford and which ones might be able to be sold for additional revenue or to at least reduce debt.
Step 5

Stop using your credit cards. Use a debit card that draw cash from your accounts. You need to work from a cash budget to reduce credit card debt. This seems obvious enough, but to do this, you are going to need to create a cash emergency fund. Start by looking at places you can reduce your budget, sell items you really do not need, those you can not afford to keep, and reduce the style to which you have become accustomed. One of the reasons people slip back in to credit card use after they start to pay them down is they run into a crisis they have no funds to handle. Before paying anything other than minimum payments on your debt create a minimum emergency fund of at least $1,000. This should cover those things that in the past have made your reach for Visa or MC. Emergencies do not include Chinese food cravings, or a new dress that just went on sale. However, we all have car problems or things that break in the house. Oddly they seem to increase just as we make the pledge to stop using credit. Having an emergency fund can help you stick with your promise.
Step 6

Once you have your emergency fund in place so you stop using credit for your crisis situations, you are ready to begin reducing those credit card balances. There are two schools of thought on which credit cards to pay first. Both involve listing your credit cards. One lists them by balance smallest to largest and the other by interest rate largest to smallest. From all I have read the savings really depends on the psychology of the consumer involved. Some people are motivated by killing the high interest rate, others by killing off a complete card and moving on to the next. Find a motivation that works for you and stay with it. The goal is to pay off one card and move on to the next.
Step 7

Choose either your highest interest rate or lowest balance credit card bill and pay the highest amount you can squeeze from your budget after reducing your costs and increasing your income each month. Pay the minimum balances on all your other cards. Do make sure all payments are made on time so no penalties hit when ever possible. When that card is paid in full, apply the full amount you have been paying from that bill to the next on your list and continue moving on until your balances are eliminated.
Step 8

Do consider adding to your income with additional jobs and selling items until your debt is cleared. Deposit change to your savings account over the course of the month, track the amount, and transfer the money to your checking account when it is time to pay your credit card bills. Apply the amount to the bill at the top of your payment list. You will be amazed at how you can benefit from adding "extra" cash you acquire towards the balance each month.
Step 9

Watch for changes on your account and do follow the rules. Credit cards are changing due dates and late payments trigger fees and added interest that could have gone to your debt reduction.
Step 10

If you do run into trouble, do not fall for scams. There are no real "easy" ways out of debt. There are lots of people who love to make money off of your misery. Research, review, and consider anything that is offered to you. When dealing with your credit card do not act on anything that is not given to you in writing. If they are not willing to put an offer in writing, they are likely not willing to honor it. Never give a credit card company access to your checking account when negotiating a deal. There is trust and there is stupidity. It is well worth the cost of a money order if they will not accept your personal check. You do not want to give them access to your accounts. There is no way to "clean" your credit once you have damaged it. The only way to make it clean is to live clean again. It takes time, effort, and years of proof to demonstrate that your habits have improved. There is no magic credit eraser out there than can perform the miracles promised.

Comments

walker7 said

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on 11/20/2009 Great article...thanks!

ziffle12 said

on 11/12/2009 Excellent Article. I NEED to send this to my sister who has not saved a dime for retirement & will turn 55 soon. 5*

kasaween19 said

on 11/1/2009 I'm working on becoming credit card free. Thanks for the information.

eac913 said

on 10/18/2009 Chinese food cravings aren't emergencies? Hummm...Seriously, wonderful article on how to pay off high credit card debt. You make excellent points and hit it where you must. 5*