Credit card debt can grow quickly and many people struggle to manage and repay debt. Prepare, stick to a budget, and understand the steps to take to help you get out of credit card debt and restore your good reputation.
Step
Part 1 of 4: Getting Ready
Step 1. Collect your credit card bill
Collect the latest bills from each of your credit cards. Account statements contain basic information about each account's debt, interest rates, and minimum payments.
There are various free online tools and applications that can help you collect and organize your account information, such as Mint.com
Step 2. Review your credit card statement
Make a list identifying the details of the debt. Each account list contains:
- Card name.
- The balance on the card.
- Account interest rate.
- Monthly minimum payment amount.
- Additional fees for late payments or usage exceeding the account limit.
Step 3. Calculate the total amount owed
Add up all the outstanding balances on each card to get the total amount owed on your credit card.
Step 4. Create a monthly budget
Determine fixed expenses each month and the remaining income that you can set aside for credit card debt. Set aside as much money as possible to repay the remaining debt every month so you can avoid additional debt from interest costs
- Fixed expenses are expenses that must be paid every month such as rent payments, utilities (eg water and electricity), and car payments.
- Also include variable expenses in your budget. Variable expenses are expenses that you can change or avoid entirely, such as buying new clothes or having dinner out.
Step 5. Lower your expenses
Try to find ways to reduce your monthly expenses so you can spend more money on credit card payments. Target the variable expenses listed in your budget to find ways to save money.
- Cook food at home instead of eating out.
- Make coffee at home instead of buying expensive coffee drinks.
- Postpone expenses that can wait until later, such as new clothes.
- Borrow books, music, and movies from public libraries instead of buying them.
Step 6. Review your debt every month
Make a list of records containing the balance, interest rate, and expenses each month. Check for incidental charges and make sure that payment has been received and credited to your account.
Step 7. Make budget adjustments every month
Your income and expenses can change, so the amount you have set aside to pay off debt can also change. Make sure that you don't spend more money than you have each month.
Part 2 of 4: Preventing Greater Debt
Step 1. Pay the minimum balance
By paying the minimum debt balance every month, you will avoid additional costs that will be added to the debt.
- If you can't make the minimum payments, try to earn more. Sell things around your house, or try to find part-time or odd jobs like babysitting.
- If you can't make the minimum payment and don't get any extra money, contact your credit card provider. Inform the credit card company that you are unable to pay the minimum payment and ask for an extension or adjustment of the payment amount.
Step 2. Stop creating debt
Do not create new debt again on your credit card, especially in accounts that have higher interest and that are close to or exceed your credit limit. If necessary, cut the card so you don't use it impulsively.
Step 3. Avoid late fees
Make sure you pay off the minimum payments on time each month so that credit providers don't charge you late fees.
Part 3 of 4: Reducing Interest Rates
Step 1. Pay off the card with the highest interest rate first
Pay off cards one by one starting with the account with the highest interest expense. This method will reduce debt faster because you will pay lower interest rates on other credit cards.
Step 2. Ask for a lower interest rate
Call each credit provider and ask them to lower your account interest rate. Even if interest rates are only slightly lower, you can add up to big savings over time. If one company is willing to lower your interest rate, ask other lenders to do the same as its competitors.
Step 3. Transfer the outstanding balance to an account with a lower interest rate
Find a card with a very low interest rate and move the balance of debt that has a high interest rate. Many cards offer a low initial interest rate for the initial period.
- Transfer balances only if you can afford to pay off the debt during the first period of low interest. Otherwise, interest rates may be higher.
- Creditors may charge a balance transfer fee. Check to see if the amount of the fee plus the new interest rate is still lower than the current interest rate.
Part 4 of 4: Considering Debt Counseling
Step 1. Consider consulting an expert for help
If you're feeling overwhelmed, a reputable debt counselor can help negotiate with the credit card company and help you create a debt repayment plan that fits your circumstances.
Step 2. Find a local nonprofit debt counseling service
Non-profit services are more likely to be legal. Many for-profit debt services charge high fees and can lead to even greater debt. Ask friends or family for referrals so you can find a good service. Reputable nonprofit debt counselors can also be found through local agencies, for example:
- College
- Military base
- Credit Union
- Public Housing Authority
Step 3. Work with a reputable counselor to decide if you need additional help
A debt counselor may suggest a debt management plan or debt repayment plan. While these services can help pay off debt, they have complex benefits and costs. Discuss plans in detail with a counselor to ensure that you are aware of the costs and possible risks.
