Credit Card Debt

Eliminating credit card debt isn’t necessarily a straightforward exercise. You firstly need to ascertain whether there is a realistic chance that you will be able, at some stage, to pay off your debt, given your current financial situation, or whether you will need to resort to taking on more debt by refinancing.

To ascertain if you could reduce your present level of credit card debt, you need to follow these three steps.

First. Write down all your credit card accounts together with the outstanding balances, the interest rates, and the minimum monthly payments as shown on your most recent statements. It can be soul destroying focussing on your total debt like this, but it is necessary.

Second. Total up the minimum payments for all of your credit  cards - how much you need to pay on each by the due date, and the total of all of the minimum payments.

Third.  If you don't already have one, create a budget.  A budget will indicate precisely what you can spend each month without resorting to further borrowing, and will show how much is available to reduce your credit card debt.

To calculate whether your current financial position would allow you eliminate your credit card debt over a reasonable period of time, show your total credit card minimum monthly payments as a single regular monthly expense within your budget.

When your budget is concluded and you've input all your income and expenses, is there any money left over to make an additional payment to the credit card with the highest interest rate? This means you would be paying the regular monthly minimum payments on all your credit cards, plus an additional payment on the most expensive card. And the more extra payment you can make, the greater the chance of you eventually eliminating your debt.

If you don't have enough net spendable income - to make additional payments to your most expensive credit card - and you can't reduce your monthly spending any further, then you may have to consider refinancing, and In the current international financial crisis  that's not going to be easy. 

Loans applications are difficult at present, and you will have to factor in any fees that are charged to determine whether refinancing makes sense. If you were to raise finance from the equity in your house you would pay a lower rate of interest, of course, but you would end up with a smaller amount of equity in your house

The most desirable course of action to reduce your credit card debt, would be to run through your budget again, and ruthlessly cut back on spending. Cut out all non essential expenditure, especially lifestyle spending, as this probably represents a standard of living that you cannot afford - hence your inability to reduce your debts.

By increasing the amount you repay on your most expensive card each month, you will accelerate your repayments, and eventually eliminate your debt. But if your credit card debt is only being reduced by the minimum amount each month, it will be many, many years before you come close to paying it all off.