MoneyRates.com monthly resolution #8: Attack your credit card debt
August 23, 2010
August's monthly resolution for financial success is to attack your credit card debt.
"Attack" is an aggressive word, but it's an appropriate way you should go after something that will systematically drain your finances if you allow it to.
With most savings account rates, money market rates and CD rates all below 1 percent, it's easy to feel that there's not much incentive to save money. But if you are living with credit card debt, it's not just the 1 percent or so in deposit interest that you are losing. Add to that the credit card interest you are paying, and you could easily be 20 percent (or more) worse off than you would be if you were instead saving money.
Strategies for paying down credit card debt
To help you reach the goal of paying down credit card debt, here are some fundamental strategies you can follow:
- Stop the bleeding. The first step is to stop living beyond your means. It may help to cancel some credit cards, or at least leave them at home most of the time.
- Address the biggest problem first. That doesn't necessarily mean the card with the biggest balance outstanding--it usually means the card with the highest interest rate. Even so, keep up with the minimum payments on all your cards.
- Consolidate where possible. If possible, consolidate debt into lower-rate cards. This will not only reduce your interest rates, but it will make it easier to organize your payments so you won't accidentally fall behind.
- Negotiate. It never hurts to ask a credit card company for a lower rate. However, don't be too quick to ask them to forgive part of the balance owed--this can hurt your credit record.
- Keep up the good work. As you pay off one card, move the payments you were making on that card toward paying off the card with the next highest rate.
Once you've paid down all your credit card debt, you can use those payments to start building up savings. It won't be easy to pay off your credit card debt, but it will feel great to be earning interest rather than paying much more of it.