How to Get Out of Credit Card Debt

There’s no doubt credit cards have their perks, whether it’s airline miles and cash-back rewards or the ability to make large payments before you actually have the cash. But they can also be dangerous, and can lead you to lose control of your finances.

Have you accumulated debt that’s stressing you out? Though daunting, it’s possible to reduce — and even eliminate — debt, but only if you have a clear plan, are committed to sticking with it, and you can stop taking on new credit card debt in the process. Ready to take on the challenge? Follow this six-step program to find your way to financial freedom.

Step 1: Identify how much debt you have and what it costs you to maintain it.
Start by gathering all of your credit card statements and creating a list of your credit card accounts. For each account, note the name of the credit card company, your current balance, and the interest rate. If you’re comfortable with Microsoft Excel basics, enter all of this information into an Excel spreadsheet — it will make it easier to track your progress over the coming months.

Step 2: Arrange the list in order by interest rate.
Put the credit card with the highest interest rate at the top of your list — that’s the one you’ll start paying off first. Review your budget and determine how much you can afford to allocate to reducing past credit card charges. This amount has to be at least the sum of your interest charges plus some extra to pay down your balance.

It is essential that you curb your credit card spending so you can achieve this number. If you need to use a credit card for future purchases, only use the one with the lowest interest rate and do so only if you already have the cash to pay off those charges in full when the bill arrives. In other words, each month you should have enough money to pay down the existing debt and new purchases. If you don’t have the cash, don’t use your credit card.

Step 3: Make minimum payments (at least enough to cover interest charges and fees) on all cards except for the one with the highest interest rate — pay as much as you can on that one.
It’s possible that the highest interest rate is close to 30 percent, and as crazy as that seems, credit card companies can get away with it. Pay off as much of this card’s balance as possible each month, because it’s costing you the most to maintain it. Once this card is paid off, move down your list to the card with the next highest interest rate and maximize those payments. Remember to keep paying the minimum required amounts for any other accounts with lower interest charges.

Step 4: Forego discretionary purchases until you save up the money.
Remember, you shouldn’t be making any charges with your cards unless the money to pay for them is already in your bank account. This includes things like birthday gifts, vacations, new clothing, concert tickets, and even holiday presents. Your family and friends will understand when they know you’re working hard on a plan for your financial future.

Step 5: Consolidate your debts by transferring balances to lower-cost credit cards.
Contact the company with the lowest interest rate charges and ask if they’ll allow balance transfers from other credit card accounts. Some may say no, but the money you’ll save if any of them say yes is worth the ask.

Step 6: Consider a low-cost loan to pay down your remaining debt.
It’s best to take this step with the help of a financial or credit advisor, but if you trust yourself to not take on any additional credit card debt, it can be a good option. Consider your potential sources for these funds, like family members, your 401(k), or a home equity loan. Before you make anything official, though, it’s critical to understand what got you into debt in the first place, have a plan to eliminate it, and most important, be confident that you won’t find yourself in the same position again, this time trying to pay back an additional loan.

As you work through these steps, be sure to track your progress on that spreadsheet or list, so you have an accurate read on your situation at all times. Whatever the extent of your debt, you can get yourself out of it with the right combination of organization, willpower, and a commitment to the plan.

Do you have any other debt-reduction strategies that have worked for you? Share in the comments!

Janet Acheatel is Founder of the Women’s Practice at HoyleCohen and a member of the DailyWorth Connect program. Read more about the program here.

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