Credit Card Debt Essentials

How to Reduce Credit Card Debt

Whether you’re struggling to pay the bills or still managing to cover your obligations, holding large credit card debts can cause big financial trouble. No matter what your situation, 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 necessarily take a complete lifestyle overhaul either—you just have to be more disciplined in the way you spend your money each month. Some debts, however, are simply too big to handle just by managing your money more strategically. If a debt problem is too big to solve on your own, call 1-888-881-3619 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:

1. 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.
   
   
   1. Identify your credit card with the highest interest rate.
   2. Continue to make the minimum payments on all of your other credit cards.
   3. Take any extra money available and put it towards the identified card.
   4. 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.
   5. Continue to do this until you are completely debt free.



2. 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.
   
   
   1. Identify your lowest balance credit card.
   2. Make the minimum payments on all of your other credit cards.
   3. Take any extra money and put it towards the identified credit card.
   4. 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.
   5. Continue until you have paid off all your credit cards.

Next Steps to Reduce Debt

In some cases, you simply may not be able to pay off credit card debts simply using strategic money management. If you have too many credit cards, you can’t afford to continue making all your monthly payments, or your balances on high interest credit cards are simply too high to pay off anytime soon, you should consider more aggressive tactics to reduce debt.

You may need to consider exploring credit card debt relief options to find a solution that will help you reduce credit card debt faster and with less of a burden on your monthly finances. Our certified credit counselors can help you analyze your budget and decide on the best way for you to reduce your credit card debt given your own unique circumstances. We invite you to call us to speak with a credit counselor at 1-888-881-3619 or take our Free Debt Analysis to get started online.