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Credit Card Reduction: Take Charge of Your Debt

Take Charge of Your Debt

Any day is a good day to reduce your outstanding balances. This is especially true given that most American workers’ take-home pay recently rose as new, lower tax brackets took effect. For many, it has freed up the cash needed to start reducing their credit card debt. Here's how even this small amount can be used to make a big difference.

Achieving a Better Balance

Start by taking inventory. Determine how many different creditors you owe and the outstanding balances you carry from month to month. Then, note the interest rate you are charged on each. Once you have this information, you can start addressing your credit card debt.

Two popular and effective debt repayment strategies are the Snowball and Avalanche methods. With the Snowball strategy, you focus on paying off the smallest balance first, and then shift your attention to the card with the next-smallest balance. You achieve small victories quickly, which can help keep you motivated.

The snowball method also works if you’re just trying to pay off one credit card balance. In this case, you pay what you can reasonably afford above the minimum payment and keep paying that amount as your overall balance decreases each month. Over time, the amount of interest will shrink, and more of your payment will go toward repaying the balance.

The Avalanche strategy involves directing more of your funds toward the credit card with the highest interest rate until it's repaid. Then, you shift that payment amount to the card with the next-highest interest rate. If you have several cards, you eventually achieve an avalanche of payments, speeding up the repayment process.

Regardless of which strategy you choose, here are some suggestions to help you stay in repayment mode.

4 Tips for Keeping Yourself on Plan

  1. Take a hard look at your credit card statements. When you pay your credit card bill each month in full, charging lunches and lattes has no added cost. Once you begin carrying balances, however, each charge starts accruing interest expenses. Ask yourself if you really need to be paying a finance charge on your gum and shampoo purchases.
  1. Do the math when contemplating a purchase, especially when it’s on sale. Stop and think about how long it will realistically take you to pay it back if you use your credit card and what that means in terms of the additional interest expense. Chances are you’ll save more money in the long run by waiting until you can purchase the item outright, preferably at on sale at a future date.
  1. Keep yourself accountable by not adding to existing debt. Leave your credit card at home or restrict yourself to cash only when you go to the store so you don’t have an easy way to pay for unplanned purchases. When at-home shopping tempts, keeping your credit card in a hard-to-reach spot, like a shoebox in the back of the closet, makes it harder to give in to impulse purchases.
  1. Stay on track by making consistent payments. As your reduction program takes hold and you see your monthly credit card balance begin to retreat, refrain from increasing the outstanding balance to its previous levels.

Credit card debt allows many of us to experience and achieve things we would have delayed for another time, sooner. Forming a strategy for paying off those purchases and sticking to it still allows you to enjoy them while making future purchases more affordable.

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