How to Reduce Your Credit Card Debt Without Lowering Your Credit Limit

Your credit limit is the maximum amount of debt you're allowed to have on your credit card. While you can make purchases with the card until your unpaid card balance reaches that credit limit, you are not obligated to use the whole amount. In fact, you're better off if you use very little of your available credit: It will make your credit score higher. The optimum is to spend no more than 10 percent, MSN Money writer Liz Pulliam Weston advises, although you can go as high as 30 percent and still maintain a good score if you pay the credit card bills on time. Create a debt payoff plan that maintains your current limits while reducing what you owe, and your credit worthiness will increase.

Instructions

1

Review your credit card statements and make a list of current accounts and interest rates. List your highest-interest accounts first, with the others in descending interest rate order.

2

Pay as much money as you can each month on your highest-interest credit card or the account with the smallest balance. Federal law forces credit card companies to disclose how long it will take to pay off your credit cards if you pay only the minimum. This information is on your monthly statements, and the payoff period can be years for high-balance cards. Paying more than the minimum attacks the actual balance; making only minimum payments can cost you double and triple the cost of the purchases in interest charges. Drop the balance on your highest-interest credit cards quickly by putting all your available cash toward substantial payments.

3

Apply your available income to another credit card once you get the one you first selected paid off. When it's paid off, move to your next credit card bill or other credit-score-affecting debt. Paying down selected accounts with all available cash reduces your credit card debt rapidly, especially if you pay the most on your highest interest accounts. It also creates a reward incentive each time you can write "paid in full" on a stub.

4

Make small purchases on your paid-off cards at least twice a year, and pay the bill as soon as it arrives. Federal law forbids banks from charging you a fee for account inactivity but permits your bank to close unused accounts, which erases your credit limit and hurts your credit score. Regular small transactions keep the account active and improve your credit score when you pay the resulting bills promptly.