How to Reduce Credit Card Debt Responsibly

Smart, responsible decisions about paying credit cards can result in thousands of dollars in savings over a lifetime. Making only the minimum payment on credit cards can lead to a lifetime of debt. For example, the University of Illinois reports that paying $50 a month on a $3,000 balance at 18.9 percent interest would require you to make payments for 15 years and six months, with $6,279.85 in finance charges. But increasing the payment by just $10 a month to $60 would reduce the length of the payments by nearly half: eight years and four months, with finance charges reduced to $2,947.

Instructions

1

Make two lists of all your credit card accounts. On one list rank them by balance, from the highest to the lowest, and another list rank them by interest rate, from highest to lowest. Check your billing statements for the most recent balances and interest rates, or call your card company using the number on the back of the card.

2

Make larger monthly payments against the balances with the highest interest rates. Paying down those credit cards will significantly reduce finance charges. Always make more than the minimum payment on cards with the highest interest rates.

3

Apply for new credit cards with lower interest rates that offer balance transfers. Transfer large balances from your high-interest rates cards to the new cards. For example, some card companies may offer cards with no interest for a promotional period of six months or even a year. However, carefully read and evaluate offers. Missing a payment or exceeding your balance could void the interest-free promotional period and result in a higher interest rate than you have currently. Also, the interest rate at the end of the promotion could exceed your current rate. Call the card company before applying and ask detailed questions about balance-transfer fees and interest rates during and after the promotional period. Put away or cancel current credit cards after transferring balances to new cards.

4

Identify some cards on your list with smaller balances that you can pay in a lump sum or over just a few months. Strike a balance between making larger payments on high-interest cards and paying off cards with small balances. Commit to not carrying balances once you pay the cards off. Using the cards is fine, but manage your budget so that you can afford to pay new balances in full each month.