Reduce Credit Card Debt Faster to Save Big!
Develop a strategy to eliminate credit card debt quickly on your own.
Whether you’re struggling to pay bills or just managing to stay afloat, holding large credit card debts can cause big financial trouble. No matter what, working to reduce debt always helps improve your personal finances. It also helps improve your credit rating when you reduce the balances owed on your debt a major factor in determining your credit rating/FICO score.
Reducing debt doesn’t usually take a complete lifestyle overhaul either you just have to be more disciplined with your money each month. Some debts, however, are simply too big to handle just by managing money strategically. If a debt problem is too big to solve on your own, call to speak with a certified credit counselor or take our Free Debt Analysis. We’re here to help.
Why Reduce Credit Card Debt?
As an unsecured revolving debt, credit card debt is a perfect candidate to choose when you want to reduce debt. Fixed debts like a mortgage or car payment carry lower interest rates they also don’t provide much of a benefit if you pay more than the minimum unless you pay them off completely. On the other hand, credit card debt usually carries higher interest rates and you can save big money in the long run if you pay down your balances sooner rather than later.
One of the benefits of paying down credit cards is that if you reduce the balance owed on a credit card you end up having to pay less each month. This eases the financial burden and frees up money to pay off other accounts, increase your savings, or simply provide a financial safety net for emergencies. The other advantage in paying off credit cards to reduce debt is that you typically eliminate your highest interest rate accounts, so you actually save money by paying these debts down.
Reduce Debt Strategically
When you want to reduce debt, think strategically. This means you need to do some grunt work and crunch the numbers on your monthly finances. Assessing your budget is the first step to take so you can determine what you owe and where to free up money for paying off your credit cards. Look at what you spend on food, personal care, and entertainment first to find places to cut back and gain cash flow that can be used to pay down credit card balances.
You will also need to examine your individual debts closely to determine how you want to pay them off. Write down each debt you have, the amounts owed, as well as the interest rate on each account. You will also want to determine how long each debt will take to pay off if you just pay the minimum balance; you can use a debt calculator to do the math for you.
Once you have the numbers, you can make decisions on how to reduce credit card debt strategically. The key is to focus on paying off one debt at a time. Pay all your minimum payments each month then put all your extra cash flow towards paying off one debt in particular. This works better than paying a little more than the minimum on each card, because that doesn’t get you very far as interest continues to build on your accounts every month.
2 Methods to Reduce Credit Card Debt
There are generally two methods to choose as you decide which credit card debt to pay off first:
- Pay off the highest interest rate account first. This method focuses on paying high interest accounts first so you eliminate the accounts that build the fastest. High interest means more money in interest charges is being added onto your balance each month than with a low interest card.
- Identify your credit card with the highest interest rate.
- Continue to make the minimum payments on all of your other credit cards.
- Take any extra money available and put it towards the identified card.
- Once paid off, take that money you were paying on the first card and put it towards the credit card with the second highest interest rate.
- Continue to do this until you are completely debt free.
- Pay off your smallest balance first. Some people are a little daunted paying off their highest interest rate accounts, because often these carry the biggest balances. If paying off high interest credit cards seems like too much to handle, paying off accounts with the lowest balances can make working to reduce debt seem more manageable. With each debt you pay, you free up money and build momentum to tackle your biggest debts. You apply the same strategy outlined above, but start with the smallest credit card balance first.
- Identify your lowest balance credit card.
- Make the minimum payments on all of your other credit cards.
- Take any extra money and put it towards the identified credit card.
- Once paid off, use all the money you were paying on the first card and put it towards your credit card with the next lowest balance.
- Continue until you have paid off all your credit cards.
Which method is right for me?
Choosing the method that’s most effective for you is highly personal. Not only does it depend on how much debt you have and how it’s divided up between your credit cards, but it also can depend on how easy it is for you to stay motivated. Eliminating by balance may cost more in interest charges, but paying off those first few credit cards quickly can give you the momentum you need to keep going, where you might get burnt out doing the reduction by APR.
If you want to see what happens with real-world numbers to compare apples to apples, we have a detailed view of both debt reduction strategies on another page – Finding the Most Effective Method for Reducing Credit Card Debt. This can give you an idea of how to compare the strategies side by side to weigh which is best in your situation. And if you’re working with a limited budget and don’t have a large sum of extra cash free to reduce debt using traditional methods, we also show you how debt consolidation helps you Reduce Debt on a Limited Budget.
How long does credit card debt reduction take?
When you’re in debt and trying to work your way out, knowing how far away that light at the end of the tunnel really is can go a long way in keeping you motivated. We explain how to assess an accurate timeline for reducing credit card debt so you can know exactly how long it will take to achieve the freedom your striving towards.