The Great Recession appears not to have dampened the American propensity to rack up credit card debt. It may even have encouraged many Americans to swipe their credit cards more frequently to make up for the loss in income streams with the expectation that things will become better soon and then they can pay their debts. (Breathe, it is okay.) At the end of 2010, the average consumer had $4,200 in credit card debt with auto loans, school loans and mortgages not considered in the equation. Fortunately, there are proven ways to get rid of credit card debt one card at a time.
- Your first step is to pay the credit cards with the highest interest rates. Look at the credit card bills to determine which one of the cards have high and low interests before making a prioritization list. Keep in mind that the lower the average interest rate on the outstanding balances, the farther the payments go in making inroads into the debts.
- The secret to paying credit card faster does not require genius math skills. You should divide in two the minimum payments required on the credit card and then start paying the quotient twice a month. For example, if the minimum payment is $100, divide it into two ($50) and then pay $50 on the 15th and 30th of the month. There are two benefits to this step. First, your average daily balance can be lessened and, thus, the finance charges are also lowered. Second, your twice-monthly payments will be lighter on the pockets, so to speak, and better for your peace of mind.
- Even while you are paying on the credit card debt with the highest interest rates, don’t forget to look at the other credit cards either. Pay the minimum balance on these accounts and then try to make micro payments whenever you have extra money. Soon, these micro payments will make significant dents into the principal balance and, thus, lessen the finance charges.
- Start cleaning up the oldest accounts. Or to put this advice in another way, you must start closing out your newest accounts. It must be noted that credit reporting agencies like FICO use the length of credit history to calculate credit scores. As such, each time that you open new credit card accounts, you are lessening the average age of your total credit and, thus, possibly lowering your credit score. As you are paying off the credit cards, be sure to hang on to the oldest cards in your name. This way, you are killing two birds with one stone – lessening your debts and raising your credit score to favorable levels.
- Last but not least, you must start buying on a cash basis. The main problem with possessing a valid credit card is the ever-present temptation to swipe the card to give in to impulse purchases often on frivolous items. To avoid adding more debts to credit cards, the most logical method is to simply stop buying with plastic! If you have to resort to extreme measures to achieve this cash-only policy, do so. You must also start adopting prudent budgeting and spending habits as well as finding other sources of potential income.
