What are some effective methods you all have used to significantly reduce your credit card debt?

Question

If you had more than one card? I currently have 3 cards and had to use them to get through college. Now that I have graduated and will have a good income, I need some structured method on how to get them knocked down fast, which one should take priority in paying the most each month, etc. Any suggestions are great. thanks

Answer 1

Throw every penny you can squeeze out of your budget on the highest interest rate, while making minimum payments on the rest. When the highest rate is paid off, move to the next till they are all paid off.

The snowball affect works. Some folks recommend paying the smallest to largest amounts. This might give you faster gratification but paying off by the interest rate will save you money. It gets easier once the first card is paid off.

Depending on how much debt you have and how hard you work at it, you could have it all paid off in a year or two.

Answer 2

I have had great success with the Snowball method lined out in Dave Ramsey's Financial Peace University classes. I have been through the class 3 times now, learning more each time I attend and you wouldn't believe how it has turned my finances around.

The key is, it didn't take you 30 days to get into debt, so it's not going to go away over night.

I won't go into details here because I don't know about the legality of telling the details and really don't need the hassle, but I will say this.

If you can first get 1,000 in a savings account and leave it alone, you'll have some 4 for emergencies, then, cut up every credit card you have. Pay off the smallest amount to the biggest and then move those payments from CC debt to savings to grow your emergency savings from 1,000 to 3-6 months of expenses. This will not be over night, it could take as much as 5+ years, but if you stop using the cards, and start saving the cash, you'll be a lot better off, and actually have something to retire on later in life.

I recommend looking into the FPU though...simple, easy to understand, yet so amazingly effective it will blow your preconceived ideas of credit/debt out of the water.

Answer 3

The best way to pay down debt on credit cards is bi-weekly. Take the minimum payment and divide it into 2. As-soon-as-you get the bill pay the first payment. Then 2 weeks after make the 2nd payment. Mark the 2nd payment 'principle'. This tells the $8/hr cust. service rep where the payment needs to be applied. If you want to send a tad bit more money then divide the finance charge in 2 payments as well and add it to the minimum payments.

This type of paying your bills especially credit cards will raise your credit scores dramatically. Do not do the snowball effect or any other method but the biweekly method. It pays your debt faster gives you a better payment history and you'll never be late.

Answer 4

Yeah, I was in your situation myself. I graduated college last in Dec 05, and I had about 26k in credit card debts. I am down to about 12k now.

Technically the cheapest way to go is to pay the minimums on everything and then pay as much as you can to the highest RATE card.

For me, the higher rate cards had high balances so I just went ahead and put the money to the lower balances so I could start getting cards paid off and feel like I was making progress.

One thing that really saved me some money was that I kept writing letters to the credit card companies basically asking for them to lower my APR. I said something like I have been paying off my credit cards, and as you can see from my credit report I've gotten X amount paid off so far. I plan on paying them all off and then I'm going to keep the card that gives me the lowest rate now. I am sending this letter to all of my credit card companies.

Two of 6 lowered my rates. One of those cards lowered it for a month and then sent me something saying they were going to double my rate so if they do that then write them a letter saying you decline the changes and then you just have to keep paying it off at the current terms.

I get paid weekly, so what I would do is take out from my check what I needed for the week and then just pay the rest to credit cards. It sucked for awhile but now my payments are about 220 a month when there were near 600. And then when I got my bonuses and tax returns 100% of that went to the cards too.

You can pay stuff off quicker too if you consider getting a second job...

Good luck and if you want a copy of the letter I mailed to my CC companies shoot me an email tinyku @ yahoo

Answer 5

Two options - if you can get a personal loan with a low interest rate to pay off all the cards (then cut them up), do that to save money on interest. If you can't get a loan for that much or the interest rate will be too high, then work on paying the cards off one at a time. Focus on the one with the highest interest rate and pay as much as you possibly can on that each month, while paying the minimum on the other cards. Pay card #1 off, close the account, then focus on the next highest one, paying the minimum PLUS what you were paying on card #1. Keep going until you are done, then start putting that same amount into savings every month. If you have a good card (ie. low interest - less than 10%, no annual fees), keep it open, because your ratio of open credit to used credit will raise your credit rating. (example - you have $5,000 credit limits on 3 cards - total $15,000. When you have no available credit - meaning you're maxed out- it's bad for your credit. But as you pay it off, you will have unused credit, making your score go up.) If your cards suck, though, then close the accounts, because if you have too much open credit, especially compared to your income, your credit score can go down (meaning if you maxed out all your available credit, could you afford to pay for it with your income?) It's all a balance game. But get the cards paid down, then you can worry about the rest.

Answer 6

First - don't use the cards unless you absolutely have to. Use a debit card, or pay cash. You don't want to dig the hole any deeper.

Next - pay the minimum payment on the cards with the higher balances. On the card with the lowest balance, put every single cent you can towards that one. If you need to, carry a lunch to work instead of eating out. Stop buying lottery tickets. Give up smoking, skip the six-pack for the weekend.

Once that card is paid off, apply all of the money you paid each month to the first card towards the one with the next highest payment, along with the minimum payment amount you were paying on this one. When that's paid off, roll both payments towards card #3. Keep on doing this for all of your bills.

Answer 7

If you are very disciplined then I would suggest paying off the one with the highest interest rate, while still paying the minimums on the other two. If you are like me, you will tackle the smallest balance first, then move to the next largest, and finish with the largest. The payments that you were making on the smallest card will roll over to the next one, and so forth.
For me, it is all about seeing my progress. If I had started to tackle my largest card first, I might never have gotten through. But when I was able to see progress my taking out the one with the smallest balance, it motivated me to keep going. I would also recommend that, whichever one you start with, you pay more than the minimum payment required.