How to Ditch Your Credit Card Debt

By Wendy Connick Markets Fool.com

Credit card debt can be stunningly expensive to carry. Despite the current low interest rate environment, the average APR for a newly issued credit card has hit a record high of 15.63%, and even a "low-interest" card's average APR is 12.47%. That's not exactly low! Keeping balances on your cards from one month to the next can cause your debt to rapidly pile up, thanks to those incredibly high interest charges. And if you're even one day late making a payment, you'll have fees to add in as well.

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The perils of credit card debt

If you're carrying a load of credit card debt, getting rid of it should probably be your top financial priority. The interest and fees will be a constant drain on your income, making it harder to accomplish anything else like saving money, investing, or paying other household expenses. But if you're looking at thousands of dollars of debt, paying it off can seem impossible. Fortunately, there are tools and strategies you can use to gradually win out over even the biggest mountain of debt.

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Tackling your debt one card at a time

The most psychologically satisfying approach to paying off credit card debt is what's commonly known as the "snowball method." With this strategy, you look up the balances and interest rates for each of your credit cards and write them down on a piece of paper. Circle the card with the lowest balance. That's the card you're going to pay off first: you make minimum payments on all your other cards, while putting every available cent toward paying off the smallest debt.

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This approach is really satisfying because you get quick results. By tackling the smallest balance first, you'll have it paid off fairly quickly. At that point, you put the money you've been using to pay off the smallest card toward the next smallest card, while continuing to make minimum payments on all others. But since you have one less card to make minimum payments on, you can probably pay a bit more on the second card then you were on the first one. With each card you knock out, your payment to the next can grow, so that even though the balances are going up you can keep paying them off at a rapid clip.

Keeping your debt from growing

While you're slowly grinding down your balance on the smallest card, the balances on your other cards may keep growing thanks to those high credit card interest rates. If you have balance transfer offers from one or more cards, you can use them to help minimize this growth. Balance transfer offers typically give you a period of low or no interest on the balance, which at least stops said balance from growing while you're working on another card. If you no balance transfer offers but a chunk of available credit, call that credit card provider and see if they'll give you a balance transfer offer. If they will, move your highest interest rate balance (or as much as you can of it) to the balance transfer card.

Finding more money to pay down cards

Of course, if you can't find any room in your budget to pay more than the minimum on your cards, you're in trouble. You've got two options: get more income, or reduce expenses. Ways to get more income include asking for a raise, getting a side job, holding a garage sale, selling your second car if you have one, and turning a hobby into a job (e.g. selling craft projects on Etsy). Ways to reduce expenses include cutting down temporarily on entertainment expenses such as movies and restaurants, switching to cheaper phone, TV, and other plans, use coupons and store specials when shopping, turn off lights when you leave the room, etc.

These suggestions probably sound pretty unpleasant, but remember, it's all strictly temporary. Once you've paid off a couple of cards, you'll have somewhat more wiggle room in your budget and can start reintroducing a few of the things you had to cut out (or get rid of that second job of delivering pizzas). And once your debt is completely gone, you'll be able to live a lot more comfortably -- just be careful not to slide back into debt. Who knows, you might find that you don't even miss some of the things you gave up in the name of reducing your debt.

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