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Two Ideas for Your Credit Card Debt Reduction Plan

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This guest article comes from Mr Credit Card who has a blog all about credit cards at Ask Mr Credit Card. If you like this article, you may want to check out his article on credit card debt reduction basics or his article on 0% Apr Balance Transfer Credit Cards.

I find that when you are attempting to reduce your credit card debt, there are two areas that you have to work on. I would assume that you will be working on your budget already. But two things that you have to focus on is to firstly, reduce your interest payments. Secondly, you have to ensure that you are doing everything to improve your credit score because improving your score allows you to borrow at much lower rates in the future and it also allows you to realistically consider refinancing some of your debt.

Lowering your interest payments

There are several things you can do to lower your interest payments. The first thing to do is to call your credit card company and simply ask them to lower your payments. You will have a much stronger bargaining position if you have always paid your bills on time and have a credit score that is improving. See Tricia’s article on How I reduced my credit card interest rate.

Consider getting a 0% balance credit card to reduce your monthly credit card interest payments. Get a card with a 12 month introductory period and make sure there is no balance transfer fee. The better your credit score, the larger credit limit you will get.

If you have a decent credit, you may want to consider getting a cash rebate credit card. These cards allow you to earn rebates for every dollar you spend on the card. Typically, you earn 1% cash rebates for every dollar you spend. Some cards will pay you slightly higher than 1% when you use the card on certain items like gasoline purchases etc. Though you will get the most benefit if you pay in full (PIF), earning some cash rebates will help in reducing your credit card payment. To ensure that you use the rebates to reduce your credit debt rather than spend it on something else, get a card that use your rebates to automtically credit and reduce your next monthly statement, rather than one that sends you a cheque.

Improve your credit score and Pay on Time

Aside from trying to lower your interest payments, you should also work on improving your credit score. The reason is the better your credit score, the better chances you have of getting a higher credit lines for your next 0% apr credit card application or your next auto loan.

Firsly, have a systematic plan in place to reduce your credit card debt one at a time. Stick to your plan and over time, your credit score will improve because your debt to credit limit ratio will improve.

You must also have a system in place to ensure you pay your bills on time. The last thing you want is to have a late payment which results in your creditor reporting to the credit bureaus. When that happens, credit cards will invoke the universal default clause and increase your rates even though you have paid on time for that particular card. Any 0% deal you have will disappear as well.

One of the things you can do is to set up automatic payments through your bank account. That way, you will not forget and your payments will always be on time. However, if you do not have a lot of emergency funds, this may not be viable. Instead, make sure you check your mailbox for your bills. Set up an online login and password for each card company and choose to get email alerts for your bills. Mark your calender to check for these emails and bills every month. Even if you do not choose to enroll in automatic payment, try to pay as much of your bills online via your bank. Using snail mail can be tricky if your credit card issuers payment center is far from you and it takes a few days to reach them. Some issuers also do not accept online payments. Be very careful and send your payments way in advance.

Be very careful should you change your address. Credit card issuers do not have bulletproof systems to ensure that your bill will be sent to your new address. I have known people who moved, changed their address by informing the operator, but somehow their bills did not get delivered to their new address and it resulted in late payments (This is another reason why email alerts and having online access is so important).

Aside from this, find out how late can you do for different creditors before they report to credit bureaus. You will need this information because there will be times when you have a cash crunch (see Tricia’s post on This would be an argument for an emergency fund. With this imformation in hand, you can at least juggle your payments should you face any near term cash flow problems.

I hope you will find these ideas helpful.

Thanks Mr Credit Card for the article! πŸ™‚


4 Comments

  • Reply Kellie |

    The bit on improving your credit score only works if the reason your credit score is low is due to late payments or you’ve stopped making payments. I have never made a late payment – no delinquent accounts on my credit report at all. In fact I don’t have anything negative on my credit report. However, I have a low credit rating because my cards are about maxed out. Improving my credit rating is going to be slow going for me because of this and I can’t do any more about it than what I am already – continue making payments on time and paying more than the minimum. I can’t open up anymore credit cards (or I should say I won’t) because that will just ding my rating even more. The biggest mistake I made was back in early 2006 (when my debt was just starting) I paid off 2 cards and closed them. I didn’t know much about what were good things to do and what were bad things to do. Had I not done that my credit rating would be way better than it is now for the fact that I’d have longer credit history (one card I closed was the first card I had ever had – oops) and my credit utilization would be 43% instead of 77% that it is now. My credit utilization has gone down from 90% since January 1st however. πŸ™‚

  • Reply judd |

    check out this movie about the debt industry:

    really opened my eyes about what’s going on.

  • Reply judd |

    really good flick about the industry. people got to fight back. “In Debt We Trust.”

So, what do you think ?