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The Best Way to Pay Down Credit Card Debt

by Jonathan Roe

Overview

The average American household has about $8,000 in credit card debt. Credit cards often carry exorbitantly high interest rates that make it difficult to pay off that debt, which is one of the reasons many Americans are forced to live paycheck to paycheck and exist in a perpetual state of financial insecurity. Paying down credit card debt can be done, however, by employing some simple strategies.
Consolidation

The first step in paying down outstanding balances on credit cards is to consolidate the different balances as much as possible. Ideally, you would consolidate them all onto a new card that has a zero percent introductory rate for several months before resetting to a higher rate. At the end of the introductory period, you would then transfer the balance to a new zero percent introductory rate card and continue doing so until the balance has been paid off. Unfortunately, this strategy won't be an option for everyone. If it is not, you will still want to consolidate all your outstanding balances as much as possible, but you will have to use your existing cards to do so. When consolidating the different balances, transfer the outstanding amounts on the highest interest rate cards to the lowest interest rate cards. Once the balance has been transferred, cut up the card, and call the company to cancel the line. Do this every time you transfer or pay off the outstanding balance on a card. Consolidating all your balances onto one card might initially lower your credit score due to the high outstanding balance as a percentage of your credit limit, but it is much better in the long term.

Negotiation

Call the credit card companies to which you still owe money. At worst, this step will accomplish nothing, but since it will probably take less than an hour of your time and can potentially save you thousands of dollars in interest payments, it is worth doing. Call and ask for a lower interest rate. Credit card companies will probably initially balk at your request, but if you are polite, patient and persistent and explain that you're trying to avoid bankruptcy and will be struggling to pay off the debt without a lower interest rate, they might agree. Approval for a lower rate usually comes from a manager or supervisor, so don't be surprised if the first person you speak with can't make it happen for you. If that person can't, politely ask who can, and ask to speak with that person. Also, don't expect your interest rate to be reduced to an absurdly low level, and be happy if it's lowered two percentage points.
Prioritization and Budgeting

Prioritize the order in which your cards get paid off, and make room in your budget so you can make the necessary payments. When determining which cards to pay off first, you might think you need to tackle the one with the biggest balance, but the cheapest, most efficient and fastest way to pay down your debt is to start with the highest interest rate card first. Once the order has been established, take a look at your budget and figure out how much money is available to apply toward your debt. You might have to cut back on some of life's luxuries or get a second job, but in the long term it will be worth it. With the money you have earmarked in your budget, pay the minimum amounts due on all your cards to avoid penalties or late fees. Apply the balance to your highest interest rate card, and continue this process until you have paid off all your credit cards.