Nine Easy Ways To Lower Your Credit Card Debt

Whether you're stuck in the minimum payment rut while your credit card balance rises like over-yeasted bread, or you just want to get your credit cards (and their finance charges and fees) under control, try these tips:

Don't let guilt stop you from taking positive steps
Credit card debt is the bugaboo of many American families. The average family with credit cards carries a whopping $8,000 in debt. Beating yourself up about your debt could keep you from taking steps to remedy it. It's easy to fall into the I'm-way-over-my-head-so-what's-a-little-more thinking. But moving in the right direction now can help you reach other important financial goals, such as saving to buy a house, car, or adding a new member to your family.

Leave all but one card at home
You wouldn't keep your cash in five separate bank accounts. Treat your debt the same way. Don't maintain several balances running at once. Keep one card — the one with the best rates and terms — in your wallet and stow away the rest. Better yet, cut them up. Using only one card allows you to keep better track of your spending, and if you're the type who likes to bump up against your cards' spending limits, you'll contain the damage to one card.

Use your debit card
If you tend to pull out your credit card when you're short on cash, train yourself to use your debit card (otherwise known as your bank card) instead. You avoid running up balances, there's no bill to pay at the end of the month, and since the money comes right out of your checking account, it makes you think twice before you buy something.

Know the score
Credit card interest rates can range from as low as 0 percent for introductory offers to as high as 28 percent, so if you're carrying debt you need to know exactly what interest rate you're paying. You can find this information in the fine print on your monthly statement. If the information provided is too confusing to sort out, call your card company and ask a representative to explain it to you. If you're not sure why your interest rate is so important, here's an example: Let's say you have a balance of $1,000 and your interest rate is 22 percent. It would take you 146 months (12 years!) to pay off that balance if you made only the minimum payment of 3 percent. During that time you'd pay $1,234.17 in interest, more than doubling your original debt. The same balance at 12 percent interest would take you 96 months (8 years) to pay off, and you'd pay $407.54 in interest. That's still not a great deal, but it represents a savings of more than 50 percent.

To calculate how long it will take you to pay off your credit card debt, try this calculator at Bankrate.com.

Don't miss those payment deadlines
Typical credit card late fees are in the $25 to $30 range. If you have three cards and you miss payments twice a year (even by one day), you're out $180 for the year. If you remember to pay your bill on the due date or a day or two before, call the credit card company. Some will let you pay over the phone with a check. You give them the number of the check you were about to mail in and its amount, and then send in the check. They often charge $10 to $15 for this service, but that's a 50 percent savings over a late fee, and you avoid the black mark of a late payment on your record.

Lower the interest rate on your current card
Eric Tyson, author of Personal Finance for Dummies (John Wiley, 2000) offers this tip: Call your credit card company and tell them you want to cancel your card because a competitor has offered you a lower interest rate and you want to transfer your balance to the new card. Often, he says, the company will suddenly offer to lower your rate if the alternative is losing you as a customer. This strategy will only work if you're on relatively good terms with your credit card company.

Get a lower interest card
Interest rates are low, so unless you're already paying the lowest rate available, think about transferring your balance to a lower-rate card. Be careful about so-called "introductory rates." They usually last only for four to six months, at which point the rate can jump to 15 percent or higher. Make a payment late or go over your credit limit and the rate can soar even higher. Unless you're sure you can pay off the balance within the specified low-interest period, you're usually better off with a higher-interest card with a set rate. One last caveat: Pay attention to the credit limit on your new card. Going over your limit can hurt your credit score, which is the score that banks use to decide whether to lend you money.

To find a card with a low Annual Percentage Rate (APR), check out:

• Cardweb.com, which publishes a monthly survey of credit card rates. Or call them at (800) 344-7714.

• Bankrate.com also keeps a continually updated list of the best credit card deals, divided into categories such as no-fee cards, low-interest cards, and mileage cards.

Watch those annual fees
Cards with annual fees often have lower interest rates, but do the math to make sure they're worth it. For example, if you carry a balance of $1,000 a month on a card with a 6.9 percent interest rate and a $50 annual fee that's the equivalent of a no-fee card with a 12 percent interest rate. To find no-fee credit cards, visit Bankrate.com.

Consolidate debt
If you're really in over your head, there are plenty of debt consolidation companies eager to help you. Generally, they offer you one big loan — usually at a lower rate of interest and with a longer payment schedule than your credit cards — to pay off your individual debts. They also act as your agent with your creditors, which means fewer unpleasant phone calls at dinnertime. And depending on the service, they may be able to help you get your credit rating back on track over time.

But this is definitely a case of buyer beware. Make sure you read the fine print, and ask yourself the all-important question: What's in it for them? Typically these companies charge such high fees that even if the interest rate on the loan is lower, you may end up paying out more money than if you were to tackle your debts individually.

Another caution: Some consolidation services present themselves as counselors, and their advice isn't always reliable. In some cases, people have ended up signing away their homes as security for a loan; in other cases they've raided retirement accounts to make the payment to the consolidation agency.

The U.S. government's consumer protection division has a number of helpful reports available on credit and debt issues. Most financial experts advise that you're better off continuing to pay your debts individually yourself. If you want to consolidate your debt, consider taking out a loan such as a home equity line or second mortgage.



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