Cut Credit Card Debt: An 11-Step Program

NEW YORK (TheStreet) -- One positive outcome from the economic downturn of the past two years is that consumers are paying down their credit card debt.

In November, Equifax ( EFX) reported that credit card debt had declined 7.3% from a year ago. The latest Federal Reserve Consumer Credit said credit card debt fell in November for the 14th consecutive month. Revolving credit, the majority of which is credit card debt, has fallen more than $100 billion to $874 billion from $976.1 billion in October 2008.

A number of factors could be contributing to this trend. Millions ofconsumers have lost their jobs or experienced a significant decline in income. There also seems to be widespread consumer outrage with the changes made by credit card issuers. Last year was filled with interest rate increases, credit limit decreases and tightened credit by issuers. These were strong incentives for cardholders to cut back on their credit cardusage and pay down their balances.

Even though the Credit Card Accountability, Responsibility and Disclosure (CARD) Act will help stabilize some rate increases, many cardholders are already stuck with high rates. The best way to protect yourself against these high rates is to pay off your balance. If you are unable to pay off that balance quickly, shop for the best credit card with the lowest annual percentage rate, or APR.

Here are 11 tips to help you cut your credit card debt:

1. Accept that paying off debt won't be easy. It took you a while to getinto debt, and it will probably take you longer to get out. Don't getdiscouraged.

2. Find out how much you owe. Collect your bills for outstanding debts, including those for credit cards, mortgages, student loans, car loans and bank loans. Create a summary sheet that lists the creditor, monthly payment, balance, interest rate and credit limit for each. List the status of each account, if any billsare past due, and verify the payment due dates.

3. Prioritize your bills. If money is short and you can't pay all of your monthly bills, first pay the bills that are necessary for health, shelter, groceries andbasic transportation. Then pay secured loans, such as your car loan. Payments on unsecured loans, such as credit cards, should come last in dire situations.

4. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you have to pay off your bills. You may also want to shop around for a mortgage or credit card with a lower rate. If you're in danger of missing a payment, contact your creditors immediately. They may be able to help you work out a payment plan, lower your rate or reduce your monthly payment. Credit card loan defaults are 10% or more for some issuers, so many are willing to strike a deal to get balances paid.

5. Focus on the card with the highest interest rate first. Continue to pay the minimum on your other cards until the card with the highest rate is paidoff, then focus your effort on the card next in line. Don't close all the cardsthat you pay off. Keep your oldest cards open and occasionally use them tobuy a magazine or a movie ticket, and just pay it off each month. This will helpimprove your credit score.

6. Pay more than your minimum payment. Your minimum payment is usually 2% to 5% of your balance. At this rate, it will take you years to payoff your debt. Try to double the minimum payment. Soon your credit card bill will include these calculations.

7. Consider transferring your balances to a lower-rate card. If your card's rate is more than 15%, it could wise to transfer the balance to a card that charges no interest for a certain amount of time, like the Citigroup ( C) Platinum Select. Most balance transfer offers have been reduced to six months. Pay attention to the balance transfer fee. At the beginning of 2009, the industry standard for a balance transfer fee was 3%. Some issuers increased that fee last year. In June, Bank of America ( BAC) increased its balance transfer fee to 4%, and Discover Financial ( DFS) and JPMorgan Chase ( JPM) charge 5%.

8. Use cash instead. If you have a credit card balance, stop using the card for anything other than necessities. Credit cards are convenient, but if you carry a balance, you are still paying interest for dinners, clothes, entertainmentand things that are long gone. If your APR is 15%, ask yourself if the purchase is worth paying an additional 15% in interest per year. If you use cash, you will not only save money on interest, but also reduce the amount you spend. According to a Dun & Bradstreet report, shoppers spend 12% to 18% less when using cash.

9. Pay your bills on time, every time. Late payments can hurt your credit score. If you are 30 days late on your credit card payment, youcould lose 60 to 110 points, depending on your credit score.

10. Check your credit report. It may contain an error that is creating a lower credit score and higher interest rates for you. If you find an error on your credit report, contact the credit reporting firm. They must respond to your claim within 30 days or remove the information that is incorrect or can't be verified. Youcan dispute information by mail, by phone or online. If the corrected errorresults in a higher credit score, contact your creditors and ask for a lower interest rate.

11. Focus on the positive. If you build a history of paying your bills on time, every time, and pay down your debt, not only will your debt decrease, but your credit score will increase.

-- Reported by Bill Hardekopf of LowCards.com.

Bill Hardekopf is the chief executive officer of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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