To make the best of your cash available to pay down debt, you will focus on the credit card with the highest interest rate. But first - just to be clear - be sure you regularly make the required minimum payment on all of your credit cards. Don’t get in further trouble with lenders or possibly damage your credit score by missing a payment if you can possibly avoid it.
The basic, unavoidable method to achieve debt-free status, is to create extra cash to pay more than you have been accustomed to. This can be done by following the tips and guidelines in other articles to eliminate credit card debt featured on this website. Now…once you have extra cash in hand, you can start attacking that card which is charging you the most interest.
Putting all available cash into the card with the highest interest will save you the most money each month. This extra money is then added to what you are able to pay. You can see how the process escalates each month.
As an added strategy, keep shopping for extra credit cards. This may seem crazy given our goal of eliminating all credit card debt, but the real reason is to look for better “deals” on the credit you have until your debts are gone. For example, if you are paying 22% interest on a credit card, you may be able to get 14% interest on a new card. If so, use your new 14% card to pay as much as you can on the 22% card. This will save you 8% on that amount of money. Every little bit helps. Just make sure you don’t abuse this strategy and start running up new charges on that new card!
Monthly Budget Challenge
Each month, take another look at where your money has gone. Hopefully, you will get into the habit of tracking all expenses once you become dedicated to eliminating credit card debt. However, it is natural the first time through to allow yourself a few indulgences. Do you belong to a health club? Certainly, you want to stay fit. After all, you need that health commitment even more if you are struggling with debt.
But, take another look…often there is a YMCA or a city operated health facility in your area. These may not have all the gear and facilities as the health club. But, they certainly will supply you with enough of the basics for a motivated cost cutter to get by with.
You get the idea. Lawn service? Cut it. Cell phone bill out of control? Cut down on the extras. Maid service? Either cut it or cut back on the frequency. Many of these services lure you into more of their services that necessary by offering lower costs if you sign onto a monthly service. Do the math instead. If you can get by using that maid service every other month rather than weekly, you will keep you house under control and still save.
Again, just take a look at expenses each and every month. Make sure something unnecessary has not cropped onto the budget. Also, as you watch your credit card debt begin to shrink, you will be excited about the progress. This often will make giving up other items less painful than you may think.
Review where to attack your budget
Keep a perspective about where to attack your budget in the hunt for more savings. The typical family spends 32% of their income on housing, 17% on transportation, and 15% on food. That’s 64% of you monthly budget. So, don’t obsess on cutting out an occasion night out at the movies, when you could be cutting far more costs by car pooling or switching to public transportation.
Just as it makes the most sense to start attacking the credit card with the highest interest rate, it is also logic to look at your highest expenses if you want to make the fastest debt reduction progress.