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Got Credit Card Debt?

By Will from Holland

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So you got these cool credit cards! Lots of nice reward benefits and cool pictures of you and your friends on the front of the card! Life is pretty good. Free money all around...or so you think.

Unfortunately, your thinking is wrong—unless you're paying off those cards in full each month. If you have a credit card (or multiple cards) and you carry balances on them, you're throwing your money away. You're paying a lot of money in high interest and you also may be hurting your credit.

But get this: If you can afford to pay interest on credit card debt, it's pretty obvious that you have money to put in a savings or investment account each month. If you pay 15% on your credit card debt each month, why not pay off those credit cards and then invest that 15% each month rather than throw it away?

How do you get rid of that credit card debt? Start by following the tips below. (Keep in mind that if you have a lot of credit card debt, it might be wise to talk to a debt counselor at the credit union ASAP!)

  1. List your cards & debt.
    Make sure you list your cards so the one with the highest interest rate is on the top. Include the card's balance, the interest rate and the minimum payment for the card.
  2. See if you qualify for a lower interest credit card(s).
    Stay away from websites that promise to find you a card. Talk to your credit union. If you've been paying your credit cards on time, you may find that you can cut your interest rate a lot by just moving your balance to the credit union¹.
  3. Figure out your minimum payments.
    Add up all the minimum payments on the cards to figure out the minimum total payment that you have to make each month. (Keep in mind that by making just the minimum payment every month, you're not actually paying off the card, you're just paying interest. Plus, this might hurt your credit².
  4. Look at your budget.
    In order to quickly pay your debt off, you'll want to pay more than the minimum payments. Figure out your budget and see how much extra money you can put towards your credit card debt every month.
  5. Start paying!
    Pay at least the minimum balance on each of your cards PLUS the extra amount on the card at the top of your list. (Yes, the one with the highest interest rate!)
  6. Keep paying...
    Keep paying this way till you've paid off your first card. Then apply the extra money (which can now include the amount you paid toward the first credit card) to the second card on your list, while you keep paying the minimum on card #3, #4 and so on. Keep doing this until all your cards are paid off. (This works even if you have 17 of ‘em!)
  7. You may also want to consider combining multiple credit cards into one lower interest credit card from a credit union...

That's it! Keep in mind that this process takes time (a lot of time in some cases), but if you stick to this plan and keep making your monthly payments, you'll be able to turn yourself into an investor rather than a debt-ridden young adult.

Big tip: If you've also got a lot of other debt, and if you need help figuring out what to do, talk with someone at your credit union. Everybody makes mistakes at least once or twice in their life when it comes to money. But if you handle it smartly, it doesn't have to be a big deal.

Here are some articles that may help:

Well, that's just a few tips for now... Be sure to check out the other articles, too. We have tons of articles to help you with your money and to help get you out of—or keep you out of—trouble.

And please let me know if you have any questions about this stuff... There's always somebody at FoolProof around to help. Just shoot us an email.

Cheers, Will.

¹ Credit unions usually have lower rates than most banks and other credit card companies. And that's not me talking—that's the Pew Trust talking. Here's what they said: "Credit unions offered significantly lower advertised rates compared to bank credit cards, with penalty fees that were half the cost of comparable bank fees and fewer dangers associated with 'unfair or deceptive' practices."

² And, believe it or not, if you owe more than 75% of your "credit limit" on any card, your credit will usually suffer. Even though the credit card company says you can charge more, other creditors usually think people who max out their card are greater credit risks than those who owe less than 75%—and they are right!