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How to Reduce Credit Card Debt

Debt Consolidation
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One of the most important steps to financial freedom is to reduce credit card debt. There are a number of different ways you can reduce credit card debt, but essentially it all boils down to the same thing: making a plan, which involves a budget, and sticking to the plan.

The Debt Snowball Method

The debt snowball method is a way to reduce credit card debt made popular by Dave Ramsey, a motivational speaker who provides personal finance advice on his television and radio program. The Debt Snowball plays on the psychological factor associated with your debt, creating a debt management system that Ramsey believes people are more likely to stick to.

In order to reduce credit card debt using the debt snowball method, you begin by listing your debts in order from the lowest amount owed to the highest amount owed. You will pay the minimums on each card. Then, any extra money you are able to find, you put towards the card with the lowest balance. If you find extra cash- a tax refund, or a rebate check for example, you will also pay those towards that card. Some people call these little cash payments “snowflakes.”

When you finish paying off the smallest balance, you then will direct all of your attention towards the card with the next largest balance. The amount of money you were paying monthly towards the paid off card gets added to what you were paying originally on this new card. Thus, you are paying more then the minimum do, and also “snow flaking” or sending extra payments in as you have cash.

Use this method until you have paid off all of your credit cards. The more extra money and payments you are able to find, the faster you will be able to reduce credit card debt and be on your way to financial freedom.

The Debt Avalanche Method

Some people do not like Dave Ramsey’s method because it means you pay more interest over the long run, since you are not paying your debts off in order of interest rate but instead in order of smallest debt to largest debt. While the Dave Ramsey method plays on the psychology of debt, pure mathematics suggests that the Debt Avalanche may be the best option.

When you use the debt avalanche, you pay off your debts from the highest interest rate down to the lowest interest rate. This means sending as much money as you can to the card or debt that charges you the most for the privilege of having the debt.

Finding Ways to Reduce Credit Card Debt

Regardless of the debt repayment method you choose, the key to finding ways to pay off your debt is to practice smart spending habits. This means living below your means and not incurring any new debt. It also means finding wiggle room in your budget to pay extra. If you pay only the minimums, it may take you decades to reduce credit card debt and you may find yourself paying large amounts of interest. When you make a commitment to reduce credit card debt, cut unnecessary spending and put that extra cash towards repaying debt. When you are debt free, you will be glad you did.

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