How to Get Out of Debt: Eliminate Credit Card Debt

Here's a GREAT piece from the Motley Fool on how to get out of debt by eliminating credit card debt. They start the piece with two quick summary points:

Unpaid credit card balances are the worst kind of debt. Come up with a plan for paying these off, and make it a priority. We offer six steps to get you started.

Personal finance is confusing enough without a stack of credit cards to track. Your goal should be to carry only one or two credit cards with balances paid in full every month.

Then they offer their advice on how to pay down credit card debt:

• Stop using your cards.
• Stop the flood of credit card offers.
• Always pay more than the minimum.
• Plan your attack.
• Reduce the interest rate.
• Consolidate your debts.

These are pretty good, but let me give you a bit more on this topic. Namely, how do you "pay more than the minimum" if you're deeply in debt and can't pay the bills in the first place?

Well, unfortunately, there's no easy answer to this. You have three choices to get the money to pay more than the minimum:

1. Increase your income. This could be from turning a hobby into a business, asking for a raise at work, or creating cash in some other way.

2. Decrease your expenses. First, you need to spend less than you earn. That may be the problem in the first place -- maybe you're spending more than you earn. If so, you need to get this under control quickly. Next, save even more by following some of the tons of money saving tips here at Free Money Finance.

3. A combination of #1 and #2.

For those of you who want to learn a bit more on this subject, check out these links:

• Strategies for Dealing with Credit Card Debt

• Nine Ways to Pay Off Debt

• Get Out of Debt

• Yes, You Can Erase 15 Years of Debt in 14 Months

Comments

[Tricia]

I'd like to add one more thing to that list...try to get into a support group (online or offline) to help keep you on track ;)

Thanks for the tips!

[Calibro]

I definitely agree with you, credit card debts with their high interests are one of the worst debts you can have.

[various credit card offers]

Some ways to pay it off:
1. Snowball your debt payment. Look at all your credit cards. Pay particular attention to the one with the lowest interest rate. Have you reached the maximum limit on that card? If not, consider transferring a higher interest bill to that one. If your entire balance is too large to fit on one low-interest rate card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan. Another way to transfer higher interest debt to a lower-interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit. You've seen the come-ons. "Transfer all your credit card balances to us, and pay just 5% until ..." It could be worth it. Moving to 5% from 18% interest could mean substantial dollars to you.
2. Borrow against your life insurance. You're borrowing your own money. But the interest rate is typically well below commercial rates, and you can take your time repaying the loan.