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8 steps to reducing credit card debt By Julie Sherrier Julie Sherrier Senior Managing Editor Award-w

It's always important to put yourself in a solid financial position, and one good way to do that is to dig out of credit card debt.

A structured, disciplined approach can help you get out of credit card debt whether your balance is $3,000 or $30,000. Follow these eight tips to get out of the red as quickly as possible.

Steps mentioned in this story:

  1. Know where you stand.

  2. Improve your rates.

  3. Track your costs.

  4. Create a budget.

  5. Choose your payoff strategy.

  6. Stash your plastic.

  7. Find your motivation and support.

  8. Track your progress.

1. Take stock.

Before you start reducing your credit card debt, know where you stand, says Cate Williams, vice president of financial literacy for Money Management International, a large, national credit counseling firm. "A lot of people will say they've got a certain amount of debt – $9,000, let's say – when in reality, it's $11,000 or $14,000." You'll never hit your target if you don't know where it is, so be brutally honest with yourself.

Action plan: Write down all your debts – and the interest rates – on every card you have.

2. Improve your rates.

The quickest way to save big on your credit card bills is to try to negotiate a lower interest rate. If you can shave off even a percentage point or two, you can save hundreds as you pay off your debt. A simple phone call and a polite request may be all it takes. Know that if you have been a long-time customer with stellar payment behavior will work in your favor. If you have a pattern of late or missed payments, the issuer may not be as receptive. Either way, it never hurts to give it a shot.

Action plan: Call up each credit card company and request lower interest rates. CreditCards.com has a script to follow when asking for a lower card rate. If you're successful, write down your new interest rates. Another option: Transferring high-interest card balances to a new 0 percent balance transfer card. Many cards offer anywhere from 12 to 18 months of no interest, but be aware that most tack on anywhere from a 3 to 5 percent fee on top of the amount you are transferring. Use our balance transfer calculator to figure out how much you'll have to pay each month to eliminate the balance within a specified period of time. CreditCards.com also offers a CardMatch tool to help you figure out which cards you can qualify for.

See related: Want a lower rate? Just ask!

3. Track your costs.

Write down all your regular, committed expenses (mortgage, utilities, insurance, car payments, minimum credit card payments, phone, gym, cable, etc.), and track other variable expenses such as restaurant meals, entertainment and travel. This will serve as the foundation to your budget.

Action plan: Study up to a year's worth of credit card bills and bank statements to get an accurate sense of your monthly spending, and keep tracking your expenses with a notebook or financial software.

See related: Tracking tools and tips for keeping financial resolutions.

4. Create a budget.

It's time to take an ax to some of those expenses. The key is to be realistic: You'll have to make some sacrifices, but you don't need to live on bread and water. "Cutting back can be more effective than cutting out," says Gail Cunningham, former spokeswoman for the National Foundation for Credit Counseling, a leading accrediting agency for credit counseling firms. "It's hard to adjust your lifestyle too dramatically, and often, little adjustments can add up to big savings." Cutting out a single pizza dinner each week, ratcheting down your gold-plated cable plan and changing your thermostat by a few degrees can give you the jump start you need. Be sure to give yourself a bit of breathing room in your budget in case an unexpected expense pops up.

Action plan: Write down three ways you can cut back immediately, and cancel or downgrade some services. Divide your monthly discretionary budget into weekly allotments so you'll have a better handle on whether you're staying on track.

See related: 6 inexpensive financial tools to help you budget and save.

5. Choose your payoff strategy.

There are two common credit card payoff strategies. The first is to plow all your extra cash into the highest-interest card while paying the minimums on the others – which is the fastest way, overall, to lower your debt. Once the first card is paid off, apply the extra cash to the card with the next-highest rate, and so on, creating a debt payoff snowball effect. A second strategy is to pay off your card with the lowest balance first while continuing to pay the minimums on the others. Though this is not the most cost-effective way to banish your debt, it's the fastest way to eliminate debt on a single card, and it can be a psychological boost to eliminate a bill for good.

Action plan: Choose your strategy, then rank cards in the order you'll pay them off.

See related: Tips for getting a big score boost whenpaying maxedout cards

6. Stash your plastic.

In 2000, MIT researchers took two groups of students and dangled scarce Boston Celtic tickets in front of them. One group was required to pay cash; the other was asked to pay by credit card. The credit card crowd was willing to pay more than twice as much, their research found. "I've seen people save 20 percent when they begin paying with cash," Cunningham says. "They become more contemplative of their purchases." But once paid off, you may be tempted to cancel your cards, especially if you've gotten into trouble with them. While canceling cards that charge an annual fee may make sense, obliterating all your plastic can ruin your credit score for several reasons:

  • Overall credit account age: Your average age of accounts affects 15 percent of your FICO score. It is calculated by the total months of all accounts on your credit report, from the open dates to the present, divided by the number of accounts. If you cancel old accounts, your overall account age will shorten, thus damaging your credit score.

  • Reduced credit utilization: When you cancel a card, you lose the credit line associated with that card. If you have balances on other cards you are still paying off, the loss of a credit line will increase your credit utilization ratio – the amount you have borrowed compared to your credit limits across all cards – will be reduced. Credit utilization accounts for 30 percent of a FICO score. So, if you're intent on canceling a card, make sure all your other card balances are either paid off or nearly so before you proceed in order to protect your credit score.

Action plan: Store your credit cards where you won't have easy access to them – but don't cancel them unless they have fees you no longer want to pay. Plan to pay in cash whenever possible.

7. Find your motivation and support.

Create concrete goals to stay focused. Maybe getting rid of debt will allow you to save for a down payment on a house, go on a dream vacation or stop worrying about every bill that hits your mailbox. Find a community to swap stories, successes, and challenges. A forum where you can feel supported – where you can say "I'm so tired of trying to save money." There are hundreds of personal finance bloggers and forums where you pull up a virtual chair.

Action plan: Write down your goals and keep them in your wallet or purse. If you get tempted to overspend, take a look at them to remind yourself of the bigger picture.

8. Track your progress.

While you don't want to spend every day fretting over your bills, keep an eye on your spending. "Revisit your progress every few months," recommends Williams. "You don't want this to consume your life. It took you awhile to get into debt, and it's going to take you awhile to get out of it."

Action plan: Put reminders in your calendar to check up on your finances. Keep the page with your starting balances, and compare them to check your progress.

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