How to Pay Off Credit Card Debt

Credit cards have become one of the most widely accepted forms of payment in our culture. Unfortunately, too many people rack up thousands of dollars in debt by charging more than they can afford to pay off each month. If you find yourself in this situation, here are a few tips for getting out of debt and staying out.

Step 1 - Get Caught Up
Before you begin any plan to reduce your overall debt totals the first thing you must do it bring any past due accounts current. If you are behind contact the credit card company and ask what payment amount would bring your account "current." Make all efforts to pay this amount. Have a yard sale, sell things on EBay, list old furniture or appliances on Craig's List. Do whatever you have to do (that is legal and moral) to generate money to get caught up. Once everything is current you can move on to Step 2.

Step 2 - Lower Your Interest Rates
If you are like most people you have several open credit card accounts. Contact each one of the credit card customer service numbers and tell them you are concerned about your interest rate. Ask them if your account is eligible for a lower rate. If the customer service agent says no ask to speak to a supervisor to have your account reviewed. Tell the supervisor you are considering moving your balance to a card offering a lower rate and closing this account. About half the time this tactic will work as credit card companies are aware that is more expensive to find a new customer than to retain one.

Step 3 - Order Balances Smallest to Largest
Ignoring interest rates for a moment create a list of your debts in order smallest to largest. Record the minimum payment due for each account. Continue to pay the minimum amount on all accounts accept the smallest balance. Use any extra money from your budget to pay off that smallest balance. Again, have a yard sale or sell some small items on EBay. DVDs, books, and small electronic equipment are great sellers on EBay. Use the proceeds from these sales to drive down that smallest balance. When you have paid off this smallest debt apply the minimum payment you used to pay to the next smallest debt. Be sure to cut up your card so you don't run the balance back up.

Step 4 - Why Not Pay Off Higher Interest Cards First?
The reason for ignoring interest rates when determining the pay off order is psychological. Similar to the feeling a dieter gets after losing weight the first week, by paying off your smallest balance quickly you get a "quick-win" and this motivates you to keep going. If your highest interest rate card was also your largest balance it might take you a year to pay it off. That is a long commitment to stick to without seeing results.

Step 5 - Stay Out
Once you are completely debt free stay that way by living within your means. Spend less than you make. Seems simple enough, but if we had all followed that mantra we wouldn't be reading an article on paying off credit cards. Find contentment in the things you have and resist marketing tactics that drive you to stores in search of the newest toys. Remember, the easiest way to get out of debt is to stay out of debt.