5 Strategies To Wipe Out Your Credit Card Balance

By Silicon Valley Blogger. Last updated 29 May 2014. 15 comments
Photo: Ebu Cehil

I have a couple of friends who live by their credit cards.  Unfortunately, they both have lower income jobs and live in survival mode, while continuing to participate in one financially detrimental pastime -- which is to shop without remorse.  They've been enjoying the good life on a very modest income and consequently, are now swimming in credit card debt with balances in the 5 figures.

I've gently reminded them over the years that they need to clamp down on their shopping activities and instead focus on more affordable ways to spend their time. But they complain about how tough it is to drop a "bad" habit.  I personally feel that it's harder to drop pounds than it is to drop a spending habit and to cut costs, but in both situations -- whether you aim to lose weight or to reduce your debt -- you'd want an action plan to succeed.

So how about we go through some suggestions on how to escape the clutches of credit card debt?

How To Wipe Out Your Credit Card Balance

1. Get a lower interest rate.
If you've got a sky-high interest rate on your credit cards, think of ways to work out a lower rate.  Perhaps you're a loyal credit cardholder: is there some room to negotiate with your credit card company?  It doesn't hurt to ask if they can work out a better rate for you.  I'd try this first before looking into a few more schemes, such as considering balance transfer credit cards, or moving your balance to a card with a lower rate. If you don't have the money to pay down your loan aggressively, you may want to consider borrowing it elsewhere at lower rates and using that money to apply to your card balance.

Tip: Have you considered turning to friends, family or even a peer to peer lending network for liquidity?  You can check out our Lending Club review for a discussion on peer to peer lending.  Becoming a member of a social lending network may give you access to loans with better terms, provided that you have good credit.

2. Track your expenses.
My friends in debt had one common problem -- they had no knowledge about how much they were spending and had no idea how deep in the hole they really were. So it's imperative for anyone who has a debt load to be aware of their expenses. The basic advice works: it will serve us well to make a budget, to use a budgeting program (check out our reviews of YNAB and Quicken software) or to try out free expense tracking tools like Mint and Wesabe.  Finding out exactly what your outgo is vs your income will give you a snapshot of your situation and will allow you to map out a debt reduction plan.

Tip: You can carry around a notebook where you write down all your expenses during the day. This way, nothing slips through the cracks!  It may take discipline to start doing this, but hopefully, it becomes a habit over time.

3. Spend less.
So how do you control your spending? You might say it's easier said than done. I agree that it involves some will power, but I personally base my strategies for spending less on 5 principles: 

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?
  • I prioritize where my money goes.
  • I defer unnecessary expenses to a later time.
  • I abstain from spending by just saying "NO" to my shopping impulses.  I actually use what is called my "3 day rule" to wait before I decide to buy something.
  • I substitute. That is, I purchase and use more affordable items instead of the more expensive alternatives. Make sure you use coupons and that you comparison shop as much as you can!
  • And finally, I delegate -- which means that whenever I get a chance, I find out ways to share the expenses I face. One example is car pooling: why not share commute costs with someone else to trim your gas budget?

Tip: Another great way to force yourself to save and spend less? Automate your savings, for the easiest way to save.

4. Prioritize your payments.
If you've got a lot of bills piling up and find yourself with a limited budget to pay off credit card debt, then prioritize your payments.  This will help you make the biggest dent on your debt right off the bat. In our case, we focus on taking care of our necessities first, after which we put as much as we can afford towards our most expensive loans. Our strategy has always been to be as aggressive as possible towards paying down debt. If this is something you find difficult to manage, then try to focus on applying more than the minimum towards your credit card balance anytime you get the chance. Any windfall you receive (tax refund, inheritance, unexpected savings, cash gift, lottery win) should go towards debt repayment in most cases. 

Tip: One caveat: Suze Orman suggests that you pay the minimum on your cards while you focus on building an emergency fund if you haven't built enough of a cushion yet. According to Suze, our new financial environment dictates that greater financial risks spell the need for us to prioritize on short term savings first.

5. Earn more money.
Spending less is just half of the equation in order to pare down debt.  The other half is to earn more.  There's no secret here: you can increase your income through entrepreneurial endeavors or by getting a second job somewhere.  Another idea would be to increase your hours of work at your place of employment if you are paid hourly.  Maybe it's time to talk to your employer?  In our household, we've been able to bump up our income using this tactic: while my spouse and I run a business, we also try to ramp up our consulting gigs and external projects when we encounter slower months in our business cycle.  These days, you'll find that freelancing and job hunting are made easier with job sites like eLance, Guru.com, Craigslist and other online job boards. We also use LinkedIn to stay connected with colleagues on a professional level, and through networking, we're able to secure job leads.

Tip: Create a professional online profile for yourself via a web site, Facebook or LinkedIn to raise your visibility to potential employers or clients.

 

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Guest's picture

Here's another simple way to speed up the process of getting out of debt: Fix your payments. Here's what I mean. If you have a balance on a credit card and you make the minimum required payments each month, then the amount required each month will decrease a little each month (assuming you don't charge any more on the card). Paying this declining minimum keeps you in debt for a long time. For example, say you have a balance of $2,000 on a card charging 14% interest and requiring a payment of 2% of the balance each month. If you make the declining minimum payment each month, it'll take you over 20 years to get out of debt. But if you fix your payments on this month's minimum of $40 (2% of $2,000) and keep paying that amount each month, you'll be out of debt in just over 6 years.

Also, here's a recent review of 5 of the more popular free online expense tracking programs.

Guest's picture
Guest

The best way to get out of credit card debt is to stop using credit cards. And the behavior of certain credit cards lately is appalling, so that gives you even more incentive to boycott them...and the stores associated with the cards. Here's what some of them tried to do to me. Only one of them was successful in their little ploys.

Last September Kohl's sent me a letter saying they were going to raise my interest rate & decrease my credit limit because of my recent late payment. My response? WHAT LATE PAYMENT?! My payments are on time! When I called they said it's a mistake that happens all the time...no appologies. Then, the next month, they changed my due date by more than a week. I called and asked why, and they politely offered to change it back without giving me a reason. Then, in February, they changed my due date again! This time, when I called, they "claimed" they sent out a letter in August stating that due dates would change in February. If they "sent" a letter, I never received it. Changing the dates like that was a ploy to get people to pay their bills late! They were hoping that people who use automatic bill pay (like me) wouldn't notice the date change. Then their payments would be late, and Kohl's would be able to levy fees and higher interest rates on their customers. Trust me, my boycott of Kohl's credit card & store started that same day, and I've accelerated my payments to get rid of my balance once and for all.

Then, there's JCPenney Mastercard. They changed my due date by ONE DAY last December. I was in the process of moving, so I didn't catch onto their little game in time to adjust my automatic bill pay. Bam! They hit me with a $40.00 late fee and increased my interest rate. All because my payment was one day late--late because they changed my due date without advanced notice. My boycott of JCPenney's credit card and the store started as soon as I realized what they did. They were just trying to come up with a way to make thousands of people late with their payments--and then collect millions of dollars in fees and increased credit rates!

Lastly, there's Target Visa. Their game was a little different, but the objective was the same. Actually, Home Depot did this to me in the past, too, but I've paid off that card, and I'll never use the card or shop at Home Depot ever again. Anyway, back to Target Visa. Last month, I discovered that my minimum payment had gone up. I called to point out their error, and they informed me that they raised my interest rates! They "claim" they sent out a notice in February, but--conveniently--the notice must have been "lost in the mail." Yeah, right! I imagine thousands or perhaps millions of those notices were "lost in the mail." It wasn't lost, because they never sent it! Anyway, I just got another statement from them, and my minimum amount has gone up again! I talked to two different people, and they couldn't give me a reasonable explanation as to why my minimum payment went up again. This time it went up by $1.50. Again, just like those other cards, they were hoping I wouldn't notice that small amount, and that I wouldn't change the amount on my automatic bill pay. They were hoping my payment would be $1.50 short so that they could charge late fees and increase the interest rate even higher. Guess who's being boycotted now? Target!

I haven't used any of my credit cards since last fall, and I am slowly making a dent in the balances. I am determined to get them all paid off, and I will never, ever, ever use a credit card again as long as I live! I've done what Dave Ramsey, Suze Ormond, and many other experts advise. I have built up a "safety net" account to cover any emergencies, such as car problems. Now I have no excuse to use a credit card! I've got money stashed away in case the water heater breaks, or in case the dog needs shots. I am immune to "bargain hunting credit card crashes" because I no longer shop at Target, Kohl's, Home Depot or JC Penney. I don't have all the balances paid off yet, but, as far as I'm concerned, I'm free! I no longer NEED credit cards! I'll never need them again, and I'll never want them again!

Guest's picture
Cred

If you cant pay your credit card off, dont have one or you will end up in a world of money pain. Keep one credit card for times when you really need it, but not for spending on items you dont need immediately.

Guest's picture

Too true cred. If you haven't got it then don't spend it. After all it's not really yours to spend.

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Guest

Somewhere in this post, or in a link within this story, is the suggestion to call your credit card company (I e-mailed mine, I don't like to talk to reps on the phone) and ask for your interest rate to be adjusted. I merely asked Amex asked what the procedure was for an interest rate review, and they dropped it 5%. I mentioned this to my boyfriend, who e-mailed his credit card company (also Amex) and his was lowered 12%! I am so glad that I tried this! Thank you!

Guest's picture
Coles Myer

I have just receive my credit card report and the numbers there are almost the same with just a minor change that didn't affect my credit score.

Guest's picture
habika

Then their payments would be late, and Kohl's would be able to levy fees and higher interest rates on their customers. Trust me, my boycott of Kohl's credit card & store started that same day, and I've accelerated my payments to get rid of my balance once and for all.
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anab01

Excellent site, keep up the good work. I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks
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myth1212

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david riched

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williamgeorge

Hey its really great ideas and I am searching for this ideas for more than 2 months. And atlast I got more than enough from this post. And may I know while tracking the response, whether it will create any problem for me from the bank?
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bob

Credit card's have the highest interest rates, and if you are not financial literate you should not be spending what you don't have. with things like paypal you really don't need one