1. Take stock. Before you start reducing your credit card debt, know where you stand. A lot of people will say they’ve got a certain amount of debt, let’s say $10,000, when in reality, it’s $15,000 or $18,000. You’ll never hit your target if you don’t know where it is, so be brutally honest with yourself. Action plan: Write down the debt, and the interest rate, on every card you have.
2. Improve your rates. The quickest way to save big on your credit card bills is to negotiate a lower interest rate. If you can shave off even a percentage point or two, you can save hundreds of dollars as you pay off your debt. A simple phone call and a polite request may be all it takes. While your credit score will play a large role in whether or not you get a rate cut, it’s not the only factor. Every lender has their own approach to this issue. It never hurts to give it a shot. Action plan: Call up each credit card company and request lower interest rates.
3. Track your costs. Write down all your regular, committed expenses (mortgage, utilities, insurance, car payments, minimum credit card payments, phone, gym, cable, etc.), and track other variable expenses such as restaurant meals, entertainment and travel. This will serve as the foundation to your budget. Action plan: Study up to a year’s worth of credit card bills and bank statements to get an accurate sense of your monthly spending, and keep tracking your expenses with a notebook or financial software.
4. Create a budget. It’s time to take an ax to some of those expenses. The key is to be realistic: You’ll have to make some sacrifices, but you don’t need to live on bread and water. “Cutting back can be more effective than cutting out,” says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a leading accrediting agency for credit counseling firms. “It’s hard to adjust your lifestyle too dramatically, and often, little adjustments can add up to big savings.” Cutting out a single pizza dinner each week, ratcheting down your gold-plated cable plan and changing your thermostat by a few degrees can give you the jump start you need. Be sure to give yourself a bit of breathing room in your budget in case an unexpected expense pops up. Action plan: Write down three ways you can cut back immediately, and cancel or downgrade some services. Divide your monthly discretionary budget into weekly allotments so you’ll have a better handle on whether you’re staying on track.
5. Choose your payoff strategy. There are two common credit card payoff strategies. The first is to use any extra cash into the highest-interest card while paying the minimums on the others. A second strategy is to pay off your card with the lowest balance first while continuing to pay the minimums on the others. Though this is not the most cost-effective way to banish your debt, it’s the fastest way to eliminate debt on a single card, and it can be a psychological boost to eliminate a bill for good. Action Plan: Choose your strategy, then rank cards in the order you’ll pay them off.
6. Stash your plastic. Research has shown that people who chose to pay by credit card rather than cash, can spend twice as much than those who pay by cash. Action plan: Store your credit cards where you won’t have easy access to them, but don’t cancel them. Plan to pay in cash whenever possible.
7. Find your motivation and support. Create concrete goals to stay focused. Maybe getting rid of debt will allow you to save for a down payment on a house, go on a dream vacation or stop worrying about every bill that hits your mailbox. Action plan: Write down your goals and keep them near you. If you get tempted to overspend, take a look at them to remind yourself of the bigger picture.
8. Track your progress. While you don’t want to spend every day fretting over your bills, keep an eye on your spending. Revisit your progress every few months. You don’t want this to consume your life. It took you awhile to get into debt, and it’s going to take you awhile to get out of it. Action plan: Put reminders in your calendar to check up on your finances. Keep the page with your starting balances, and compare them to check your progress.