How to get rid of credit card debt

Follow these steps to ease your financial burden

I have been asked by a number of people how to reduce their credit card debt. The balance on credit cards can add up quickly, especially if you only make the minimum payment each. There are a number of reasons for trying to reduce your credit card debt including qualifying for a loan or mortgage, raising your credit score or freeing up the money you have available to spend on other things each month.

To reduce your credit card debt:

  1. Find out exactly what you owe on each credit card.
  2. Create a list of your credit cards: include the balance on each card, the interest rate and any annual fees on each card. Make the decision to not add any more debt to your credit cards.
  3. Make it harder to use them by leaving them at home, keeping them in a locked box or cutting them up.
  4. Do not close any accounts until you have paid it off in full. 

Next, calculate your monthly income from work (take home pay) and other sources so you know how much you have to spend each month on your bills, food, gas and other expenses.

To calculate monthly income:

  • If you are paid once a week, multiply the take home pay by 52 and divide by 12 to compute monthly income.
  • For person that are paid every two weeks, multiply take home pay by 26, then divide by 12.
  • Some employers issue paychecks twice a month, if this is the case, multiply take home pay by 24 and divide by 12.

Write down all of your monthly bills. This includes rent or mortgage, any loan payments, utility bills, insurance payments, credit card payments, cell phones, and internet. Don’t forget to include monthly charges for online services such as music subscriptions, movies, audio books, etc. Some of these charges may be automatically added to your credit cards each month.

Also, determine how much you spend on food, clothing, gas, entertainment, cigarettes, alcohol, medication, etc. It is helpful to track your spending to find out exactly how much you spend on a day-to-day basis on these items. Michigan State University Extension recommends making a list in a notebook or on a cell phone of each purchase you make every day, no matter how small the amount. Do this for at least a week and preferably for a month. Total the expenditures into categories such as food, gas, entertainment, clothing, cleaning supplies, etc. This will help you to have a true picture of what you spend your money on each month and how much.

After you have determined exactly how much money is available to spend each month and where you are currently spending your money, you can determine if you have extra dollars to put on your credit card balances. If you receive extra income periodically such as over time, try to apply some of this money toward your credit cards balances.

If you have more than one credit card, start whittling down your balance one credit card at a time. Choose the card with the highest balance or the highest interest rate and pay a fixed amount extra each month such as $50. Or you can start with the card with the lowest balance to reduce the number of cards you are paying on each month. Continue to make the minimum payment on all of your other cards.

There is a powerful tool available online to help you organize and keep track of your credit card pay down plan called PowerPay from Utah State University. Other useful resources for reducing debt can be found at the MImoneyhealth.org website from Michigan State University Extension.

Most importantly, have patience. Most likely, your debt did not accumulate in just a few days; be prepared to spend time paying it off. The rewards of less debt will be worth the time and effort!

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