If you find yourself in a situation of short-term financial hardship, running up that credit card is usually a quick and easy “solution”. However, being in possession of maxed-out and high-balance Credit Cards will weaken your ability to survive any looming financial storms.

Eliminating Credit Card Debt

In times of economic insecurity you may be tempted (or even required) to use credit cards more than is financially responsible. If you find yourself in a situation of short-term financial hardship, running up that credit card is usually the quickest, easiest, and most reasonable “solution” (compared to getting a bank or payday loan). However, being in possession of “maxed-out” and high-balance credit cards will only decrease your ability to survive any future financial storms. Many consumers are not aware, but in 2009 FICO changed the way it calculates Credit Scores, making high balance accounts more damaging to your overall score. While many banks and financial institutions have been slow to adopt these changes, they will sooner rather than later. The faster you can pay off what you owe to these banks and financial institutions, the sooner you will enjoy a better Credit Score, be able to take advantage of historically low interest rates, and accumulate savings for rainy-day and/or Retirement funds.

One option for eliminating credit card debt is to use the services of a debt management firm. While this may be useful for some, you can create your own “get out of debt” plan for free. While this plan is not easy, it is relatively simple.

The first step is to review all of your credit card statements, looking for any errors (if errors/inconsistencies are found you’ll need to contact the card issuer right away!). Second, determine ways to easily trim credit card expenses. If you are anything like me, you might have hundreds of dollars that are automatically charged to your card for products and services you no longer need or want. For example, that subscription to the cheese-of-the-month club may have been financially reasonable two years ago, but is no longer a justifiable expense.

Next, contact the credit card companies and request a decrease in interest rates. Any drop in the APR will help, no matter how small it seems. If you can’t successfully negotiate a decreased interest rate now, try again every few months. Each month that goes by with consistent payments will show your credit card company that you are a responsibly borrower, increasing the likelihood that they will honor your lower APR request.

Finally, use your cards sparingly. Only make charges that you know you will pay off before the beginning of the next billing cycle. And prioritize your credit card payments (i.e., don’t wait until the last minute—when you have no money left—to make that payment, or else you probably won’t).

(See the next blog post in this series: Raising Your Credit Score (Part 3 of "Getting Out of Debt Has Never Been More Important"))