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How to Eliminate Credit Card Debt

If you are like most Americans you probably have credit card debt. How much credit card debt do you have? The average is over $6,000! Yours may be higher...way higher! It can be downright depressing. Certainly paying the minimum required payments is not going to eliminate credit card debt balances.

Here are some tips that you can use to help you eliminate your credit card debt:

  • Make payments above the minimum required payment. If you pay just the minimum, it is not uncommon to have a credit card balance take over 20 years to pay off! Making just small payments above the minimum will help to slowly reduce your credit card balance.
  • Don't miss a payment. Ever! Most credit card companies love it when you miss a payment! Why? Because they have stipulations in their card agreement with you that typically bumps your interest rate way above what is probably an already high rate. I checked the card agreement with one of my cards and if I had a payment that was late, my rate would go from 9% up to 23%! Talk about expensive!
  • Try to pay the higher interest balances first. These are the cards that are costing you most in interest costs. When you pay off a card, take the money you were paying on the card that was just paid off and start applying it towards the next card. Hopefully, you can pay ever larger payments towards each successive card as you pay each card off.
  • Consolidate your credit card balances. If you are able to get a loan with a much lower interest rate, you might want to consider a consolidation loan. For example, you could take out a home equity loan at a rate of let's say 8.5%, use it to pay off your credit card balances that are charging you 18%. A debt consolidation loan will help you eliminate credit card debt much faster because less of your money is going to finance charges and more of it is going towards principle payments.

    P.S. - This is exactly what I did and it is amazing how much easier faster and easier it is to pay down your credit card debt. You also only have to make one payment every month!

  • Don't use your credit card if you can help it! The last thing you want is adding to your credit card debt at the same time you are trying to reduce it. Use a debit card. Write checks. Pay in cash. This is an often overlooked tip. It helped me reduce my balances.
  • Don't take cash advances on your credit card. The interest rates on cash advances are typically much higher than the rate on standard purchases. Not only that, when you make extra payments on your card, which balance do most credit card companies apply the principle towards? You can bet its not the cash advance balance with the higher rate. They save the best for last when it comes to paying your balance, so they can charge you the higher rate as long as possible!
  • Trim down your lifestyle. This is probably one of the reasons you have a high credit card balance to begin with because you are spending more than you earn! Try to live within your means. The money you save should be put towards your credit card balances.

After each card is paid off, should you cancel it?

This is really up to you. If you have a problem resisting the urge to use your credit cards, cancel them, cut them up, thrown them in the fire, whatever you need to do to stop using them, do it!

What are the advantages to keeping your card active, but with a very small or zero balance? This can help improve your credit score because the formula used to calculate your score takes into account how much debt you have in relation to the credit limit. The lower the debt to credit limit the more this helps increase your credit score.

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