Creating an effective plan to pay off debt requires carefully evaluating your debt and finances, and choosing a path that's right for your situation. There are clear advantages to eliminating debt, such as a higher credit score and easier loan approvals. You didn't accumulate debt overnight, so don't expect quick results. Be patient and stick with your plan to gradually reduce balances.
Start With the Lowest Balance
There are several methods to getting rid of credit card debt; and while some people choose to start with the credit card with the highest interest rate or highest balance, paying off your lowest balance first can provide a sense of accomplishment and motivate you to continue your debt elimination efforts. You can pay off a credit card with a $500 balance quicker than a credit card with a $2,000 balance.
Talk Down the Interest Rate
Get on the phone with your credit card companies and start negotiating the interest rate on your cards. The interest you pay plays a major role in debt elimination. Interest incurs monthly, and the amount of interest charged by your card company effects how fast you're able to reduce your principal. Ask for a rate reduction on the spot, and inquire about any promotions such as zero percent interest for six to 12 months. A good payment history -- no late payments -- and a good credit score helps you qualify for better rates.
Increase Minimum Payments
Credit card companies do not request large payments, and they base the minimum on a percentage of your card balance. But even if your card company only asked for $20 or $30 a month, aim to send in higher monthly payments to start bringing down your balances. For example, take the extra $200 you have a month and pay down a $1,000 balance in about five months.
Avoid New Debt
Resisting the urge to use your credit cards or take out new loans is key to paying off debt. Include a "cash-only" policy in your plan to pay off debt and do not pull out your credit cards. Shop when you have money to pay for an item with cash; and if dealing with self-control issues, use scissors to cut your card in two or place them in a card shredder.
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