Can I Reduce Credit Card Debt On My Own?

Depending on what you read, the first bank issued credit card has been around since as early as 1946 when a New York bank first invented the ‘Charge-It’ system. Then like now, individuals bought items on credit at a merchandise store, the store collected from the bank and the bank billed the customer. I wonder when the first ‘overdue’ account came along?

Safe to say, individuals have probably been dealing with the need to reduce credit card debt ever since.

reduce credit card debt

There are a number of ways you can reduce your credit card debt on your own – if you have the discipline to follow through with a plan. Paying the monthly minimum isn’t going to get the goal accomplished. Paying extra ‘when you can’ probably won’t get your debt reduced either. Your debt reduction plan needs a deliberate, structured framework that will get you to where you want to be – out of credit card debt.

Gather Your Starting Point

Make a list of all of your credit cards, including their balance, interest rate and expected minimum monthly payment. Here is a debt reduction worksheet you can download.

Next sort the list – either highest to lowest (if you like to cross items off the top of a list) or lowest to highest (if you like crossing items off the bottom of your list).  Highest and lowest what you might ask?  Well, either use the current balances or the interest rate.  My preference is to list credit cards from highest to lowest interest rate.  The way to save the most money is to pay down the highest interest rate cards first.  Having said that, many people like to use balances and they pay off the smallest balances first so they can see items dropped from the list.  Each method makes sense – it comes down to your personal preference.

Define Your Debt Reduction Payments

There are two ways to pay down existing debt.  The obvious method is to simply make larger than required payments towards your credit card debt.  If your Visa requires a minimum payment of $83 try to pay $183 if you can.  These extra payments come straight off the balance and will save you thousands of dollars in interest over time.  Focus your extra payments on the items you want to cross off the list first.  To save the most money pay down high interest rate cards first.  To get things off the list the quickest pay down the smallest balances first.

The less obvious method to reduce your credit card debt is to use other credit to pay it down.  If you have two credit cards and one has a lower interest rate then you can save money over the long term by transferring as much of your debt as possible to the lower interest rate card.  Better still, if you have a line of credit it with a lower rate still, use that to pay off your credit cards then create a plan to reduce your line of credit balance quickly.  You might even consider applying for a new loan or line of credit (basically a debt consolidation loan) just to gain access to lower interest rates.

Reduce Credit Card Debt Permanently

Borrowing new debt to pay off old debt comes with a warning.  As you pay off the old debt you must cancel the accounts.  If you do not cancel the accounts you run the risk of using the old cards again and instead of reducing your debt you might double it. You might be saying, “I’d never do that!” but it happens. I can’t tell you the number of people I have met with over the years that have doubled their debt simply because they didn’t close their old accounts as they paid them off.

On a related topic, no one should ever have more than one or two credit cards. A credit card is designed to be a replacement for cash – you use it so you don’t have to carry cash. Credit cards are not a replacement for borrowing. If you buy something with a credit card and know you can’t pay it off at the end of the month then you are voluntarily paying very high interest just so you can have the thing you bought sooner.  If you wait until you can pay for it you won’t pay any interest and you can use the money you save to do other things.

Reducing your credit card debt on your own is not going to be easy. It probably took you a while to build up your debt, it’s going to take a while to eliminate it. If you think, even with a disciplined approach, that this will take too long and you can’t afford to pay off your credit card debt totally on you own, talk to a professional about your other legal debt relief options.

Category: Credit Card Debt |

Jan 9, 2014


About Ted Michalos

Ted is a Licensed Insolvency Trustee and Chartered Accountant with more than 20 years experience. He is a co-founder of Hoyes, Michalos & Associates Inc., one of the largest personal insolvency practices in Canada focused on helping individuals deal with their debt.

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