How to Create a Debt Reduction Plan for Credit Cards

The painful truth is that the two key ways to get out of credit card debt are to stop using credit cards and to put as much money as possible toward the debt until it's gone. In order to tackle these tasks, you need a plan and a clear idea of how much money you have and where your money goes. Debt reduction starts with planning and frugality.

Instructions

Credit Cards

1

Gather all of your credit cards on the table. Make a chart with three rows. For each card, fill in the interest rate, credit limit and amount you owe.

2

If there is any one card that you can afford to pay off right now, write the check and put it in the mail. Call each credit card company and politely request a lower rate. If you have a record of paying your bill on time every month, then remind them that you are a good customer.

3

Consolidate as much of the debt as possible on the card with the lowest rate.

4

You must stop using these cards. If you continue to rely on credit cards, then you will thwart your own attempts to reduce your debt. Take the cards out of your wallet so you're not tempted to use them. Only use them in case of an emergency.

Personal Budget

5

Draw up a personal budget. Make a simple chart. On one side of the paper, write your monthly take-home pay. This is the amount of money in your paycheck after taxes. If you are self-employed, assume one-third of your money goes to taxes.

In the second column, write down your necessary monthly expenses. These include your rent or mortgage, transportation to and from work, and food. This column may also include child care and utilities for your home.

6

In the third column, write down regular expenses that are not necessary. For example, you may enjoy going out after work once a week with a buddy, but this is not a necessary expense. You may be surprised what kinds of things belong in this column, and not in the "necessary" column. New clothing, desserts and name-brand products belong in this column, to name a few.

In the fourth column, write down the monthly minimum amount you must pay toward credit card debt.

7

Subtract column two from column one. The difference is your discretionary income; that means this is the amount of money you have left over every month to spend on yourself after necessary expenses are paid. Your discretionary income pays for columns three and four. Ideally, however, you want to pay more than the minimum monthly credit card bill. Calculate whether you can afford to pay off double the minimum every month. If not, then see if you can afford to pay off just a little more than the minimum.

8

This last step is the hardest. Go through the items listed in column three, and ask yourself what you can do without. The less you spend in column three, the more you have left over for column four. If you can't do without something, then ask yourself if you can get it a cheaper way. For example, instead of buying new clothes, visit a local consignment shop and see if you find what you need there. Try purchasing generic brands instead of the more expensive name-brand products. The more of your discretionary income you can put toward credit card debt, the sooner you will be out of debt.