How do I get rid of credit card debt?

It doesn't matter how you got into debt. Maybe you maxed out a student card, or you've been unemployed and living off your credit card, or you've just been running a loose ship. Whatever got you into this mess, if you're ready to get out of debt, there are a few basic steps you should take. Each step will require some discipline, so be sure you are ready to commit to your new goal of becoming debt-free.

The quickest way out of debt

First, stop adding to your debt. You might need to bury your credit cards in a block of ice in the back of the freezer. You might find it liberating to cut up your cards. But don't cancel those credit card accounts! Cancelling the accounts may make you feel better, but it won't make the debt go away. On top of that, reducing the amount of credit you have available will reduce your credit score when what you really want to do is improve it.

Second, establish an emergency fund. This may seem counter-intuitive, to put money in the bank instead of directing every available dollar to debt reduction. But there's a method to the madness. Find yourself a high interest savings account and automatically transfer part of every paycheck into it (ten percent is often recommended). After a few paychecks you'll have a cushion in place, and you won't need to rely on credit to pay for unexpected bills.

Third, start a Debt Snowball. The Debt Snowball, described by Dave Ramsey in The Total Money Makeover, is designed to give you a psychological boost as you pay off your debts. Here's what you do:

  • List all your debts from the lowest balance to the highest.
  • Make a budget, including the total amount you can pay on all your debt every month.
  • Make the minimum payments on all your cards every month so you don't incur any fees.
  • Pay the rest of your "debt budget" toward the credit card with the lowest balance.
  • When that card is paid in full, keep your debt budget the same, but send all the extra money toward the credit card with the next lowest balance.

    If you've trimmed, cut or slashed expenses and your budget has trouble accommodating savings and debt reduction, you may need to look into ways to increase your income. Needless to say, don't add more debt to one card while paying off another!

    Another way to prioritize debt

    A more traditional method works a lot like the Debt Snowball, but this one ranks your credit cards in order of interest rate. If you prefer this method, you follow the same pattern as above, but you focus first on paying off the credit card with the highest interest rate, then move on to the next card with a high interest rate.

    The advantage of this traditional method over the Debt Snowball is that you will pay less in interest overall while reducing your debt. You might find that the Debt Snowball works better, though, because paying off each debt in full galvanizes you to keep at it until you've paid them all off.

    Should I consolidate my debts?

    The short answer is maybe. You may be tempted to transfer your debt from one credit card to another to take advantage of low interest rates. But beware of simply shifting your debt around rather than paying it off. Also, many of these transfers incur fees, so you may be better off simply sticking to a debt reduction plan.

    Have you successfully tackled credit card debt? If so, I'd love to hear what worked for you or if you have other tips to share with others who are struggling to get out of debt.

    >Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book, "HOMEBUYING: Tough Times, First Time, Any Time" is available now at Amazon.com or from www.MicheleLerner.com.

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