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Many people are struggling with credit card debt. Unfortunately it doesn’t take much to derail your credit. A few missed or late payments on any credit card or loan can cause creditors to start calling and bring a world of stress into your life. If you are in this situation, here’s two methods on how to get your credit back on track and eliminate credit card debt to become debt free as quickly as possible:

Debt Free Method #1- Pay off highest interest credit card first:

Step #1: List all of your credit cards, including your outstanding balance, your interest rate, the minimum payment percentage and the minimum payment according to your latest statement. Yes, this could be painful and may strike a chord of panic in your chest. Don’t worry. This is the first step to gaining control of your finances and becoming debt free.

Step #2: Once you have that list, highlight or circle the credit card with the highest interest rate. This is the card you’re going to attack first.

Step #3: Add up the minimum payments for all of your cards. This means if you have five credit cards, what minimum balance do you owe on each and what is the total of your minimum balances?
Step #4: Create a personal budget. Yes, this may sound like a scary word, but a personal budget will tell you exactly what you have to spend each month and how much you have to pay off your credit card balances.

Step #5: Pay the minimum balance on each credit card you have EXCEPT the one with the highest percentage rate. On this card you will pay as much as you can on top of the minimum balance. So if your minimum balance is $25, and you’ve budgeted to pay an extra $50 toward your credit card debt, you’ll make a payment of $75.

Step #6: Once your balance is paid off from your highest credit card, move on to the next highest credit card percentage rate. Now you will add the extra $50, plus whatever the minimum was on the card you paid off, to the minimum that is due on the next card. (Example: $50 + $25 + $25 = $100) Continue the process until your debt is paid off.


Debt Free Method #2 - Pay off smallest credit card balance first:

Step #1: List all of your credit cards, including your outstanding balance, your interest rate, and the minimum payment percentage and the minimum payment according to your latest statement.

Step #2: Once you have that list, put them in order of smallest balance to largest balance. The card with the smallest balance is the one you’re going to attack first.

Step #3: Add up the minimum payments for all of your cards. This means if you have five credit cards, what minimum balance do you owe on each and what is the total of your minimum balances?
Step #4: Create your personal budget to see exactly what you have to spend each month and how much you have to pay off your credit card balances.

Step #5: Pay the minimum balance on each credit card you have EXCEPT the one with the smallest balance. On this card you will pay as much as you can on top of the minimum balance. So if your minimum balance is $25, and you’ve budgeted to pay an extra $50 toward your credit card debt, you’ll make a payment of $75.

Step #6: Once your balance is paid off from that credit card, move on to the credit card with the next smallest balance. This time you will add the extra $50, plus whatever the minimum was on the card you paid off, to the minimum that is due on the next card. (Example: $50 + $25 + $25 = $100) Continue the process until your debt is paid off.

Pick a method that will work for you, put it into practice and before you know it YOU can be DEBT FREE!

Tip: Call your credit card companies and see if you can lower the percentage rate. If they will not lower your credit card rate, consider shopping around for a card with a lower rate. If possible, transfer the balances on your high rate cards to cards with a lower rate. Keep in mind that you will likely incur a fee for this transfer. Make sure you cancel the card that you just transferred the balance from. You certainly don’t need the temptation of a card with a zero balance to ruin your progress.

Are you ready to finally live debt free?
Click here to learn how to get out of debt and on the road to financial freedom today!

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2 comments

  1. Janet // 5/21/2008 6:48 PM  

    I think another key to both option #1 & #2, is to put the cards away and quit charging on them. Although this might be common sense to some, to others the card can become just a bad habit and hard to quit! Thanks for sharing your tips...

  2. Rick Vaughn // 6/11/2009 9:09 PM  

    I think Janet really hit it on the head. The real key is to do your best to stop using them. However, having a plan is even better. In the end it's all about execution.