How to Reduce Your Credit Card Debt
1. Plan What You’d Rather Spend the Money On
The very first thing you can do is to find something that's more important to you than either overspending on your current lifestyle OR that's exciting enough that you are motivated to take time off to do it. You have to have a goal that's more exciting than what you're currently doing with your money. Otherwise you'll find it very hard to change your spending habits.
2. Reduce Current Lifestyle Spending
This is not about trying to make your life horrible. This is about working out what you could cut away without it really mattering. Gym memberships often go unused, or cable TV packages, or even something like a second car. See what you could be saving money on without making your life miserable.
3. Renegotiate Credit Card Rates
You might be surprised to know that you can often contact your bank and ask what they can do for your credit card rates. After all, they want to keep customers, and especially credit card customers. Ask your bank if you can take a break on your credit card interest. They probably won’t let you off forever, but they might give you a period at a reduced rate. Don’t be afraid to tell them that you will take your business elsewhere if they can’t give you what you want.
4. Think About a Balance Transfer
Sometimes you can get a 0% balance transfer credit card with another company. This is a bit of a Catch 22 situation, however, as these tend to only be available to people with good credit. If your credit score is bad, they might be tougher to get. The other thing to remember if you do this is not to go and spend the new balance as well, which is a trap a lot of people fall into.
5. Throw Away All New Credit Card Offers
Unless they’re offering you a better interest rate or a 0% balance transfer, and you’re going to cut up another card to use the new one, just throw them away. They’re more likely to get you into further credit card debt than to bail you out.
6. Pay Off Your Highest Balance Credit Cards First
This is one of the core strategies when you do credit counseling, but you can do this, and all of the other things we’ve discussed here, without going through a credit card counseling company. Though those companies can be immensely helpful, you might not be at that stage yet.
7. Temporarily Reduce Investments in Your Savings, If Necessary
The temporarily part in this is very important – otherwise it can be very easy to get out of the habit of saving, and just spending this money instead. But in the short run say you have $12,000 in credit card debt, and you’ve been paying $500 a month into your savings, you could knock out that 25% interest quickly, then get back to making savings. It all depends if it makes sense in terms of your savings, and assuming that the interest you’re earning on your savings is less than or equal to the amount you’re paying in credit card interest. I’m not saying it works for everyone, but it could work for you.
8. Track Your Credit Score and Work to Improve It
You can often do this via your online banking, or by contacting your bank to ask for your credit score. If not, there are a number of online services that can help you to do that, such as CreditKarma.com. Tracking your score, and looking at how your habits affect it, can to improve your credit score, as well decrease your credit card interest too.
9. Create a Budget
It might sound boring and old fashioned, but at the end of the day, a lot of this is just math. Base your budget off what you earn, so that you won’t be spending more than you have coming in. It sounds so basic, but lots of people don’t do it. I’ve used Quicken to create my budgets for years, and that works for me.
10. Track Your Finances Monthly.
Track your monthly spending, and try to not have more going out than you have coming in. I've used the Quicken app for years, but use whatever works for you. There have been times when I’ve tracked my spending, and times when I’ve let it slide, and the times when I’m actively tracking my spending are definitely when my spending habits and bank balances are much healthier. If you’re a small business, I can recommend QuickBooks or a similar tool to track outgoings and income.
