Credit Card Debt Reduction & Amortization

The scourge of credit card debt in America is pervasive. According to the National Survey on American Finances, the average American family is carrying upwards of $8,000 in credit card debt. One of the reasons is gross overconsumption. Another is financial ignorance. Understanding how to eliminate debt and how revolving debt works is essential for successful money management.

Understanding Credit Card Amortization

Simple amortization is used almost exclusively in mortgage repayment calculations. These schedules figure monthly and yearly payments based on interest and principal payments, and calculate the time required to pay off a closed-end loan. In credit cards, amortization schedules are fluid. As a borrower reassesses a credit line, the amortization must be recalculated. Since a payment on a credit card is based on the outstanding balance, the amortization will change based on the balance. In many cases, the amortization of a credit card debt -- if it remains the same -- will take as long as a mortgage to repay if minimum payments are made.

Reducing Credit Card Debt

Take a full look at your credit card debt. Prioritize your plan. Plan on paying down the highest interest cards first as this will save you the most in interest payments. Make all payments on time to eliminate over-limit fees and late fees. To begin paying down debt, you'll need to manage a strict budget. For a month, spend as you normally would, but write down all expenses. At the end of the month, review your purchases to see where you can cut expenses. Take the savings and begin applying this to the card with the highest interest rate.

Strategies

If you are living paycheck to paycheck, you'll need the help of credit counseling to avoid bankruptcy. Consider getting a second job if you can manage the time. The most essential component of debt reduction is discipline. Creating a budget and a plan is the first and easiest step. For many, eliminating luxuries, shopping, and entertainment expenses can be difficult. Create rewards for sticking to a budget -- like a inexpensive dinner out or an elegant evening in. Keeping track of expenses goes a long way toward paying down credit card debt.