How to Reduce Credit Card Debt
Two proven methods of reducing debt that can save you time and money.
When you need to take down credit card debt, there are two basic ways to do it effectively. The method you choose depends on your unique financial situation and goals. Each method prioritizes your credit cards to create a repayment plan that lets you reduce debt as efficiently as possible.
[On-screen text] Take Down Credit Card Debt: The Right Way to Fight High Balance Credit Card Debt
Narrator: Credit card debt can be one of the toughest enemies you face as you fight to protect your financial realm. Armored heavily with high interest rates, regular minimum payments often barely make a dent in these debts.
[On-screen text] There are 2 basic strategies to reduce debt effectively. The style you choose depends on your situation.
Narrator: Luckily there are two strategies you can use to fight back effectively. Which method you choose really depends on your situation.
[On-screen text] But first… you must know your enemy
Narrator: But first, you must know your enemy to craft an effective strategy to win the war.
[On-screen text] Average credit card debt per U.S. adult = $5,596; cards that have a balance month-to-month = $7,743; average no. of card per cardholder = 3.7
Narrator: Average credit card debt in the United States is over $5,500, and is even more when you focus only on those who carry balances over every month. And while the average number of cards is less than four, that number often grows to five to ten for those fighting against debt problems.
[On-screen text Fighting style no. 1: Tiger Style. For those with the power to take big bites out of debt every month. Debts to target: Highest interest rate first
Narrator: Now fight: Tiger Style!
[On-screen text] How it works
Narrator: Here’s how you make this strategy work.
[On-screen text] Maximize your fighting power: Streamline your budget, cutting unnecessary expenses and boosting cash flow
Narrator: First streamline your budget by cutting out expenses that you don’t absolutely need and this will maximize your power.
[On-screen text] Hold off smaller enemies: Maintain the minimum payments on all of your debts except one
Narrator: Hold off on smaller enemies by making standard minimum payments, then focus all of that power to deliver powerful blows to the next debt with the highest APR.
[On-screen text] Take down biggest threat first: Make the largest payment possible on the debt with the highest interest rate
Narrator: This style uses your credit power to take out your biggest enemies in debt first so you target your debts in order of the highest interest rate.
[On-screen text] Move on to the next biggest threat: Once the first debt is done, roll your cash over to the next highest APR debt
Narrator: Once that first big boss is down, move on to the second and focus the bulk of your power to defeating it next.
[On-screen text] Start clearing the field: As you work your way down, you’ll have more cash power to eliminate debt even faster – you gain more power as you go!
Narrator: As you work your way down, taking out each opponent with the highest APR, you’ll begin to clear the field and gain power as you go.
[On-screen text] Eliminate multiple enemies at once, when possible: Once the first debt is done, roll your cash over to the next highest APR debt
Narrator: By the time you get to your smallest enemies, you should have enough power to cut down several enemies at once until all debts are eliminated!
[On-screen text] Are you a tiger? You need power to be a tiger – if you don’t have a large volume of cash available in your budget, you won’t have the power necessary to take bites out of your biggest debt threats.
Narrator: Tiger style is best used by fighters with the financial power already available. So, if you don’t have much cash on hand, you may not have the power needed to take out those big enemies quickly. In which case…
[On-screen text] Fighting Style No. 2: Crane Style. Peck away at your smallest debts first to gain the momentum you need to win. Debts to target: lowest balance first
Narrator: Crane Style may be your best method.
[On-screen text] Find any available seed money to feed your fight
Narrator: Scour your budget for any little bit of cash you can use to eliminate debt and make minimum payments to keep your biggest enemies at bay.
[On-screen text] Keep combatants on the field: Keep up with minimum payments on all of your debts
Narrator: Target debts with low balances first because they’re easy to wipe out. Here’s how this strategy really works.
[On-screen text] Start by pecking away at your smallest debt: Devote all of your extra cash to make the biggest payment possible on your lowest balance
Narrator: This method pecks away at smaller enemies first so you can gain power as you start to clear the field.
[On-screen text] Each debt eliminated boosts your energy: Every time you pay off a debt, you eliminate that bill so there’s more cash to face bigger enemies
Narrator: Next devote your focus to taking down the debt with the lowest balance. You’ll gain monetary power each time you cut down a debt because there will be one less debt to eliminate.
[On-screen text] Work your way up to the biggest baddies: Once you’ve cleared out all of the small debts, roll those savings into the cash you’re using so you can take out the biggest threats.
Narrator: By the time you get to your biggest balances, you’ll have the power you’ll need to take them down!
[On-screen text] Are you a crane? If the debts that have the highest interest rates are also the ones with the biggest balances and you don’t have a lot of cash, then it makes sense to start at the bottom and work your way up.
Narrator: Crane style is best suited for debt fighters with limited cash flow who need to gain momentum as they battle.
[On-screen text] Consolidated Credit. When debt is the problem, we are the soluti8on. Call 800-210-3481, www.consolidatedcredit.org
Narrator: And remember, if you’re having trouble winning your battle, Consolidated Credit is here with reinforcements that can help you win!
Tiger style debt reduction: High APR first
This is how to reduce debt fast so you can minimize interest charges. High APR debts eat up each payment, so eliminating them first reduces your total cost. The more money you have to make large payments, the faster this will go.
Here’s how to reduce credit card debt with this method:
- Use a credit card debt worksheet to list out all your debts. You specifically need to note each current balance and the APR.
- Prioritize the list from highest APR to lowest.
- Now review your budget to cut any unnecessary expenses; this maximizes the cash flow you have available to pay off debt.
- Make the minimum payments on all your debts except the one with the highest APR.
- Then make the biggest payment possible on the debt with the highest APR.
- Keep that up until the debt is gone, and then move on to your next highest APR debt.
- As you eliminate each debt, you free up more money to pay off the next. This accelerates repayment until you reach zero on all your balances.
Crane style debt reduction: Low balances first
If your highest APR debts are also your biggest balances, tiger style may not work effectively. Basically, you may not have enough power to tackle your largest debts first. In this case, you organize your debts starting with the lowest balance.
All the steps listed above are the same. However, you pay off the lowest balance first. This frees up money to pay off your next smallest balance. Each small balance eliminated gives you more cash to pay off the next. This way, you accelerate faster to more cash freed up.
With crane-style you essentially start pecking away at your debts. Each debt that you knock down gives you more pecking power to take out the next. By the time you get to your biggest balances, you have the cash flow you need to take them down.
For easy reference, we created an infographic that explains these two methods step by step:
Comparing do-it-yourself debt reduction to other options for relief
It’s important to recognize that a do-it-yourself debt reduction strategy may not always be the best solutions for debt problems. There are debt relief alternatives that may allow you to:
- Get out of debt faster to save time
- Minimize total interest charges to save money
- Reduce the monthly payments to save you from juggling bills
Different debt solutions offer different benefits, so it’s important to compare your plan to reduce debt to these other solutions. There are three basic solutions you can use for debt relief that won’t damage your credit or increase financial risk:
Other options exist, but they either damage your credit or increase your risk. For example, you can use a home equity loan to pay off credit card debt. However, this means you can be at risk of foreclosure if you default. That’s why we don’t consider this option when comparing good solutions to get out of debt.
If you wonder why you can’t make any headway in reducing debt, look no further than your credit card APR. High interest charges eat up the majority of every payment you make, making it impossible to reach zero. Learn how to find debt solutions that reduce or eliminate interest charges so you can reduce credit card debt fast and regain stability.
When you can’t afford to make ends meet with your current payments, there are ways to eliminate debt for less. These solutions focus on adjusting the interest rate applied to your debt, so you can reduce it efficiently. Then you pair this with a repayment plan you can afford on your budget. As a result, you can get out of debt faster even though you pay less each month.
A debt reduction plan is only as good as your ability to execute it successfully. Plans that take too long usually lead to even more problems with debt. This page teaches you how to set reasonable expectations on how long it takes to reduce credit card debt. Armed with this knowledge, you can compare debt relief options to find the best solution for your needs.