With current state of the global economy, more and more people are finding themselves drowning in credit card debt. The interest rate charged on credit cards is such that the major portion of the minimum monthly payment goes to pay the interest with a very small amount going towards paying off the outstanding balance. If you make only the minimum payments and do not use the credit card at all during the month, you will notice a very slight difference in the amount of money you owe when you compare two monthly statements.
Getting out from under this debt load is a daunting task for many people who often see that they only way they can do so is to take out a debt consolidation loan. This is a very good way of eventually becoming debt free and leaving you with extra money for your living expenses and other bills during the month. The way in which this type of credit card debt reduction plan works is that you take a out a loan that will pay off the balances of all your credit cards. Although you still have the same amount of debt, there are advantages to using such a plan because you have one monthly payment instead of several and this payment is significantly lower than the total of minimum payments you make on all the cards separately. Plus, the interest rate is lower so that more of your payment goes towards actually paying down the debt.
When you embark on creating a debt reduction plan for your credit card debts, the first thing you need to do is take stock of how much you owe on each card and the amount of your latest minimum monthly payment. Look at the interest rates charged on all cards. Start with either the card with the lowest balance or the lowest rate of interest. Prepare a monthly budget to see if you have any spare money at all at the end of each pay period. Pay this money as an extra amount of the payment. Even an amount as small as an extra $25 or $50 a month will enable you to see more of a difference in how much you owe on the card each month. Keep making the minimum payments on your other credit cards.
When you have the card with the lowest amount, if this is where you choose to begin, paid in full, then start on the card with the next lowest balance. Instead of thinking that now you have more money each month to spend frivolously, take the payment amount you free up with the repaid account and add this to your minimum payment each month. This is when you will truly start to see a dramatic difference in how your outstanding balance decreases each month.
A debt reduction plan for reducing credit card debt in this manner can also start with looking at the interest rates charged on each card. If you have monies available on the card with the lowest interest rate, use this money to pay off the balances on a card with a higher interest rate. Then you can combine the amounts of the payments and make one larger monthly payment with more of your money going to pay down your debt.
Take advantage of offers of zero per cent credit cards to be able to reduce your debt. These credit cards have 0% interest for an introductory period, usually six months. Transfer your balances to this card and them start making high payments on the cards to have all or most of the balance repaid before the interest free period expires.
Some credit cards also offer very low interest rates if you transfer the balances of existing accounts to the credit card and you receive this same interest rate as long as you are paying off the account. This is one way in which you can pay down your debt a lot sooner than you will by continuing to make the minimum monthly payments on high interest credit cards.
No matter how many credit cards you have you do need to be aware of the amount of interest you pay each month. The best way to handle credit cards is to pay off the outstanding balance when you receive your statement to avoid paying any interest at all, but very few people can afford to do this.