10 Sensible Ways to Reduce Credit Card Debt
You don’t need financial advisors or credit reduction agencies to eliminate debt, just some common sense tips, plus a dynamite strategy that actually INCREASES your wealth in the long run.I looked at all the options suggested by the financial experts, all the Top Ten Ways to Financial Freedom articles, and glanced at a few of the books and programs that deal with debt reduction, and then basically tossed them all out the window.And then I got down to business. Here’s how I dealt with my debt in practical, sensible ways, and why I chose the methods I used. Some of what I learned from this process is fairly obvious, but that doesn’t mean they aren’t important, and by the time your finished reading, you’ll be able to see for yourself how the obvious things lead up to the amazing Big Credit KO Punch at the end.
1. Don’t Fall Into the “All At Once” Trap.The first thing I realized was that it’s a natural tendency to think that the best way to deal with it is all at once, especially so since it was an Immediate Gratification mode of thinking that got me into the mess in the first place. That same mentality has a tendency to leave you feeling that you’re not making progress, which leads to an overall lack of motivation.
2. Nickel and Dime ItMake payments as often as you can. If you have 10 extra dollars, make a payment. It WILL add up, and you will see a difference. DON’T save it all up for the monthly payment. Go online and make the payment NOW!
3. Find More MoneyTo make any headway at all, I had to start coming up with more money I could actually use to make payments higher than the monthly minimum… it’s too easy to think that monthly minimum means “the minimum amount you need to make some headway” when it really means “the minimum amount that is best designed to increase your debt even further.”Like most people, I was used to carrying cash around, “just in case I needed it”. The problem is, when you think about it, is that we invariably wind up spending a little of that cash here and there on things we don’t really need. In other words, I came to understand that if I didn’t have it, I wouldn’t spend it.
4. Use Direct Deposit: Screw the Banks!The next thing I did was opt into a direct deposit for my paycheck. The reasons for doing this go well beyond the obvious, such as the tendency to write a number into that little box on the deposit slip that says, CASH BACK. It also put me in a position of being less likely to overdraw my account and wind up paying overdraft fees (which is the last thing you need when your already trying to save money). Without going into a lot of detail, your friendly neighborhood bank has practices in place that are DESIGNED to make you more likely to overdraw your account, but that’s another story.
5. Put that Money Into Reducing Your DebtI suddenly discovered that I COULD make a higher payment at the end of the month, sometimes significant, and my balance on my highest interest rate cards began to drop. The prospect that I was actually making a little headway gave me a boost of badly needed encouragement, and I started looking for more ways to save money.
6. Ask Yourself, “Do I Really Need This?” But don’t foregt to REWARD YourselfFast food is convenient, but is it really necessary? Nope. But I did allow myself to indulge in it occasionally. Just because I was in a financial mess didn’t mean I couldn’t reward myself. The same went for groceries. I started paying more attention to the little labels that said, “cost per ounce” instead of what had the lower price, and quickly came to understand the psychological games that supermarkets play to make the most profit off of their shoppers. The lowest price almost NEVER means the best value. Think of it as buying gasoline. That’s the ONLY price we see: the cost per gallon, not packages of various gasoline brands in colorful, deceptive containers designed to look like they hold more, with big signs saying, “NORMALLY 3.99, NOW 2 for 7.49!”
7. Reduce Your Utility CostsNext to rent or a house payment, what’s the biggest expense most of us face? Energy bills. You can save a significant amount of money over time very easily by not being lazy. Close doors to rooms you don’t need heated or cooled most of the time and shut the vents. Turn the cooling up 2 degrees in summer and down 2 degrees in winter. Turn out the lights in a room you’re not using. Buy a compact fluorescent bulb or two when they’re on sale and slowly replace all the lights in your living space. Get out of convenience mode and get into savings mode. Start thinking long term. You’ll be amazed just like I was.
8. Negotiate Lower Rates and Transfer Balances… On YOUR TermsI started making more headway, including getting some of the lower balance cards reduced by half. Now it was time to get on the phone and make some calls to the credit card companies to negotiate lower rates. Sure, I could have tried to play the Zero Balance Transfer Game that most new card offers come with, but do you really think for one second that those offers aren’t designed to do the exact opposite of what you’re trying to do? Don’t get caught up in that trap.The best way to do this is by getting your lowest rate card spending limit increased, which is something nearly every credit card company is MORE than willing to do. It also never hurts to ask at the same time if they can shave a little off the interest rate, and give them the impression that you’re sort of tied into the higher credit limit based on this. You might get nothing in the way of rate reduction, or you might be surprised. It doesn’t hurt to try.Now it was time to play the credit transfer game I’d set up for myself and do it by my own rules. I transferred as much as I could from the higher rate cards to the increased limit lower rate cards, and then focused on paying off any remaining balance on those high-rate cards. As soon as I got one to zero balance, I got rid of it. Cutting up a card from a company that’s been legally screwing you over is amazingly rewarding.
9. The Coup de Grace: Put Your Retirement Account to Work!You know that 401K plan at your company that you’ve been paying into? You can take out a loan, usually 25% of the total amount, and pay down or pay off your credit card debt. This may sound like a bad thing or a risky thing, until you consider all the ramifications. The rate on my 401K loan was 8% annually, not compounded daily on a daily balance average (credit card interest rates are really effed when you think about them, aren’t they?). The reason most people see this as a risky venture is that you’re messing with your retirement account, your future, and cutting down your potential growth by having less money to compound over time.Amazingly, this isn’t true at all. By paying off your credit card debt, your return on investment is actually the 8% rate you’re paying PLUS the credit card interest rate you’re NO LONGER PAYING. So if you’re credit card rate is, for example, 19%, you’re return on investment in the long run is 8% + 19%, or 27%. Who wouldn’t jump at the chance to invest 25% of their retirement account into a guaranteed return of 27% over a six-year period (the maximum length of repayment on a 401K loan)?Not only was I enjoying that aspect, but the monthly loan payment was several hundred dollars less than the total of the various credit card payments I HAD to make every month, which meant more money in my pocket, so to speak.Additionally, the loan payment comes out of your paycheck pre-tax. You’re not paying your normal 40% tax on that amount, so the real COST of the loan per month is even lower.
10. Cut Up Your CardsDoes this really need any explanation? It’s too easy to fall back into the same trap. Don’t do it. It’s not worth it.And that’s how I got out from under my huge credit card debt, which is something I’ll never have to do again. I keep one card, and use it only in emergencies, and pay off the balance in 1-2 months. I refuse to play a losing game. If I want to do that, I’ll just go to Vegas. At least there’s a small chance I might come out ahead.
Thanks for a very thought provoking post.
I was searching for \’Discover Credit Cards\’ at google and found your post named \’10 Sensible Ways to Reduce Credit Card Debt\’ in search results. Not very relevant result, but still interesting to read.
#1 is a great point. So many people over do themselves and stress themselves out. Don’t do this!! Attack one credit card at a time
Credit card debt is on its all time high with today’s economy. Hopefully people can obtain the help they need to get out of debt.
Sunda
Dont do this!!!!
The Scientific Technology is high level Improvement……
Once upon a time peoples are walk and walk to get a money……..
But this Scientific century goes to many improvement to our peoples………
One card That is credit card. this will act a money to get the peoples on several minutes………
But Some peoples are using that Card with illegal Methods……….
Must avoid this habit………
=========
sunda
Don’t be a victim. Stop credit card debt now. We can help.
If credit cards are the greatest source of bad debt, auto loans are a close second. You are upside down on the loan the second you drive off the dealership’s lot and it’s downhill from there. Too many people shrug off a car payment as a necessary evil.
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Interesting and totally relevant points you make! Touching on point
– negotiate lower rates – if things are really bad then its vital you contact your lenders anyway. They will be more than happy to help out because if they do not then there is a decent chance they will not get any of their money back, if things for the borrower do get this bad.
Often they will reduce if not cancel any fees you owe and reduce if not cancel interest rates on loans and credit cards.
Keep in mind though that this will probably have some reflection upon your future credit rating, but when needs must… Besides, a credit rating can be improved with the right steps when the timing is right for you!
Ooops – the smiley face above should have been an “8″… point 8.
Is there a way to become a content writer for the site?
question: what is money? how is it created? and for what reason? am i to believe that smarter now as individuals, society or global village as opposed to our forefathers, or even at any stage of human existence? if someone tickles me i laugh, if someone is mean to me i am sad, what is the feeling some call ‘gut instinct’ or ‘de-javu’
sad is mans condition when he mimics a dog who chases his tail…
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An motivating post well worth the study – the number of credit cards must be relatively small, but it is typically better to have added than one. Having too much credit obtainable makes you appear risky to creditors, as you could quickly and readily burden yourself with more liability than you can handle. On the other hand, if you have just one credit card obtainable to you, you are added or a reduced amount at the mercy of the issuing bank’s conditions and conditions. By having added than one card, you are letting the bank know they are not your just credit options.
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Booking as far in advance as possible has really saved me money.
Hey there, you made my day with that post. Could you please elaborate more on this topic on your nest post? BTW, everyone should spend their money with common sense and try not to get into huge debts. I wrote a bit about that at http://HowToReduceCreditCardDebt.org a couple of days ago.
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Somehow, between my husband and me, we have managed to accumulate tens of thousands of dollars in credit card debt. We can’t seem to find a way out. We have tried to budget, we have done research, and we have even cut out alot of fun stuff in our lives. I think it’s time for me to get a part time job. If we can’t pull this off, we may have to declare backruptcy.
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It’s actually not simple to get out of “bad credit” situation. I’ve been at that place and it surely takes a while. There’s no “overnight cure” to it. One thing that I urge is to take aid from an expert. Although you should be warned that browsing for honest credit repair service isn’t that easy either. With tons of misinformation blowing around about credit companies, it’s clear to realize why people sometimes have trouble resolving which company can render honest-to-goodness service. As expected, each company claims itself to be the better choice.
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Personal debt settlement definitly seems to be known as a viable solution for people dealing with credit card debt. I’ve been watching the debt settlement quite closely and it is quite difficult to guage what is actually being purchased for the investment in debt settlement. I am aware that there are a great number or debt service providers in today’s market that serve up great services and the clients really benefit, but I have also heard there are lots of service providers marketing their services that are only focused on collecting payments and signing up new clients. This is obviosly why there is brand new federal regulation surrounding the debt negotiation industry. My brother in law utilized a debt business and seems to be very super satisfied with the solution that was provided.
Bad Credit Credit Cards: Help for Those With Credit Issues Bad credit credit cards can be quite helpful to those that have bad credit or even no credit for that matter. Having good credit and being able to purchase things by credit card can both be extremely important issues so it is important to be in a ….