Tips for Credit Card Reduction in 4 Easy Steps

 The secret to debt elimination lies in reducing or eliminating APR applied to your balances. By minimizing the interest charges that get added to your debt each billing cycle, you can focus on paying off principal; that’s the actual debt you owe. Then you simply prioritize your balances and knock out each debt one by one:

1. Call your credit card companies to negotiate lower interest rates.
2. Revisit your budget to free up as much cash flow as possible.
3. Prioritize your credit card balances for elimination based on your budget.
4. Focus your cash flow on eliminating one debt at a time to become debt-free.

As you decide on the best way to take down credit card debt, there are two basic tactics you can use. The strategy we outline above stays the same no matter which path you choose. The difference is how you prioritize your credit card debts for reduction in Step 3. We go into more detail on each step below, so you know exactly what to do at each stage to get out of debt.

1. Use a credit card debt worksheet to list out all your debts. You specifically need to note each current balance and the APR.
2. Call each credit card company to see if they will negotiate to lower your interest rates; if so, adjust the interest rate on your worksheet accordingly
3. Prioritize the list from highest APR to lowest.
4. Now review your budget to cut any unnecessary expenses; this maximizes the cash flow you have available to pay off debt.
5. Make the minimum payments on all your debts except the one with the highest APR.
6. Then make the largest payment possible on the debt with the highest APR.
7. Keep that up until the debt is gone, and then move on to your next highest APR debt.

As you eliminate each debt, you free up more money to pay off the next debt. This accelerates repayment until you reach zero on all your balances. This acceleration to reach the bottom is why this method is commonly referred to as the Debt Avalanche – a term coined by the financial expert Dave Ramsey.

If your highest APR debts are also your biggest balances, tiger style debt reduction may not work. This is especially true if you couldn’t free up any extra cash for debt elimination because your budget is tight. In this case, you may not have enough power to tackle your largest debts first. Instead, you need to peck away at your debts, starting with the lowest balance first.

All the steps above stay the same, but you prioritize your debts in Step 3 by current balance. You start with the lowest balance first, which frees up money bit by bit. Each debt you eliminate gives you more money to take out the next debt.

With crane style, you essentially start pecking away at your debts. Each debt that you knock down gives you more financial power to take out the next. By the time you get to your biggest balances, you have the monetary power you need to take them down.

• Stop charging! Any new credit card debt will only set you back as you pay off your balances. Avoid making new charges to your credit cards until you have your balances paid off.
• Build savings into your budget. Unexpected expenses are a leading cause of credit card debt. Try to pad your budget with at least some emergency savings. If you’re living paycheck to paycheck, pay off a balance and then divert the cash that you save to an emergency savings fund.
• Avoid solutions that put you in a weaker financial position. If you’re looking for solutions to a traditional debt reduction plan, avoid options that increase your financial risk, like a home equity loan, or that damage your credit, such as debt settlement.

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