If you don’t have the cash to pay off all or most of your credit card debt at once, you can create a plan using a variety of tricks and techniques to eliminate what you owe.
Review your debt
The process of paying off your credit card debt begins with reviewing what you owe. In addition to looking at which cards you have and what your balances are, check the interest rates and terms of your agreement, which will help you decide which cards you want to pay off first.
Call the card companies
Some card companies might lower your interest rate or extend you more credit based on factors such as how long you’ve been with the company, your payment history and your credit score. Some card companies might reduce the amount of debt you owe if you pay off the rest of your balance with a lump sum payment.
You might be able to set up a payment plan in exchange for the reduction of fees and interest payments. These last two tactics can help you pay off debt sooner, but can damage your credit history. Ask the card company if any arrangement you make with them will be reported to the credit-reporting agencies.
Review your credit reports
One way to pay off credit card debt is to use other forms of credit, such as low-interest or interest-free balance transfers to reduce or eliminate the amount of interest that continues to pile up while you’re trying to pay down your debt. The better your creditworthiness and higher your credit score, the better credit deals you’ll be able to get.
For this reason, it’s important to examine copies of your three credit reports and make sure there is no incorrect information on them that can damage your creditworthiness.
Go to AnnualCreditReport.com (the official website mandated by the U.S. government’s Fair and Accurate Credit Transactions Act for free credit reports) to get these three reports free. If you’ve done this within the past year, you might have to pay for new copies, which you can also get from the three credit reporting agencies, TransUnion, Experian and Equifax.
Decide which cards to pay off first
After you’ve reviewed your credit card debt situation, cleaned up your credit reports (or made sure they were already correct) and talked to your credit card companies, decide which cards you want to pay off first. If you pay off the card with the highest interest rate, you’ll lower the total amount you owe over the long-term.
You might want to pay off a lower-interest rate card that lets you transfer balances at low interest rates or with an interest-free promotional period. You can then use this card to transfer a higher-interest balance from another card. Check to see if there’s a balance transfer fee and how that will affect how much money you will have saved once the promotional interest rate ends.
Financial guru Dave Ramsey suggests the “snowball” method, starting with paying off the card with the lowest balance first to give you a psychological win. This sounds pretty patronizing, doesn’t it? And, this leads to paying more in interest rates over the long-term if the card with the smallest amount of debt also has the lowest interest rate.
Other gurus, like Suze Orman, suggest paying off the highest-interest card first.
Create a budget
Spending less helps you save more, which you can use to pay down credit card debt. People are often surprised to learn how much they are overspending when they create a monthly budget. Get copies of the past 12 months credit card and checking account statements to see where you’ve been spending your money.
A couple who goes to the movies once each month at $40 per date spends more than $500 per year if they put those tickets, drinks and popcorn on a credit card and carry the balance. Cutting one cup of coffee and one casual dining lunch per week can save you another $800 or more.
Check your grocery spending. Buying generics and waiting for sales can help you keep another $2,400 or more in your checking account (then off your credit card debt) each year. Learn how to create filling meals for less than $1 each here.
Sell some assets
You can make thousands of dollars with a yard sale. Go through your garage, basement and closet and look for items you can add to a yard sale or sell on Craigslist. If you haven’t worn or used something for a year, consider selling it – you can always replace it when you’re in better financial shape.
Tell your friends you’re having a yard sale and that you’ll come and haul away anything they don’t want so you can have a more attractive sale.
Use your home equity and life insurance
If you own real estate, talk to your mortgage lender or a bank or credit union about a home equity loan. This puts your home or condo at risk if you can’t later pay back the loan, but might get you a much lower interest rate to pay down a high-rate card or cards.
If you have a life insurance policy with equity, contact your insurance company to see if you can borrow against it.
Manage your credit
Don’t close credit cards as you pay them off. The longer you have a credit card, the better your credit score. Your debt-to-credit ratio also affects your score. If you close a credit card, you have a higher percentage of debt in relationship to your remaining credit available, hurting your score.
Your credit card company might also offer you a balance transfer promotion within a few months. Look at adding another credit card if it gives you an opportunity to transfer a balance for a year or more at little or no interest. Be careful about applying for credit cards. New credit cards and applications can lower your credit score. Only apply for one after you’ve done your homework.
Consolidate your loans
A loan consolidation is a method for reducing your total amount of debt and putting all of the remaining debt with one lender, giving you only one, smaller monthly payment.
The problem with consolidations is that they are aggressively negotiated on your behalf by a consolidator, who then charges you a potentially higher interest rate on the remaining balance. Consolidations also hurt your credit worthiness and remain on your credit reports for years.
Try friends and family
What are you friends and family earning on their investments? If you have credit card debt that’s at 20 or 30 percent, ask someone close to you if they would be interested in lending you money at 10 or 15 percent. It can be a win/win for both of you.