How to Consolidate & Reduce Credit Card Debt

Consolidating credit card debt can be one of the first steps to reducing it and paying it off.


Having credit card debt is bad enough, but having credit card debt spread over several cards can be downright stomach clenching. Just keeping track of when the minimum payments are due can be hard enough -- forget trying to calculate interest on top of that. Consolidating debt may help to reduce your monthly payments and get you on a faster track to reducing your overall credit burden. Beware of debt management programs which may carry hidden fees and adversely affect your credit report.

If you haven't already, draw up a spreadsheet on what you owe. Doing this on the computer will certainly have its perks in terms of helping you crunch numbers, but don't let your Excelphobia hinder you from getting started. Go old school and break out a notebook and calculator. This is where the rubber meets the road and you get real with every cent you owe. Include columns for creditor name and phone number, total amount owed, minimum payment, interest rate and payment due date.

Stop using your credit cards. If you want to reduce your credit card debt, it's sort of a no-brainer right? But one of the biggest hindrances to getting out of debt is that just when you get a bit ahead on paying it down, you go out and rack up more charges. It's a vicious cycle, and one that can be avoided through several methods. The first option is to simply remove your cards from your purse or wallet and place them in a secure file at home or a safe deposit box. Others have given a new meaning to "freezing" one's credit cards by placing them in a Ziploc bag with water and popping them in the ice box. If you're feeling especially brave, cut up the higher interest cards and leave just one or two with the lowest interest for emergency expenditures -- and by the way, a weekend spa trip with the girls does not qualify.

Negotiate with your creditors. You might think it's futile to negotiate with creditors. But in fact, you may have more leverage than you think, especially if more than one of your cards is issued by the same bank. And these days, that's a pretty good bet. Call your card issuer and ask for a lower rate. If you've fallen behind in payments, ask about consolidating your cards to help reduce your monthly payment.

Consolidate balances onto lower-interest cards. The transfer offers that come in the mail these days aren't as lucrative as they used to be. Still, it's worth checking out, especially if you have credit cards with double-digit interest rates and high balances. For example, transferring to 0 percent APR for 18 months on a current $5,000 balance with an interest rate of 15 percent could save you close to $1,000 in interest in a year. You will likely incur a fee for this service, usually around 3 percent of the total balance transferred, so be sure your long-term savings offsets this fee. Like Cinderella's carriage turning into a pumpkin at midnight, once that introductory period ends, so does your sweet deal. And if you've added new purchases to the card during the promotional period, you likely will be paying them at a higher rate and may not be any better off than when you started.

Seek help from a credit counselor. Before you throw in the towel and alleviate your stress with another credit bender, consider talking with a certified financial planner or credit counselor. The National Foundation for Credit Counseling has more than 800 branches throughout the country offering free and confidential debt management advice. There are other non-profit agencies out there like NFCC that will charge you nothing for this type of advice. Many of these organizations are funded by creditors so it is in their best interest to help you devise a good financial plan.

Pay it off. Now that you have a plan, buckle down and get serious about getting on the road to financial freedom. Some financial advisers like Dave Ramsey promote the debt snowball, wherein you pay off your lowest balances before moving onto your higher ones. Essentially, you stop paying everything except minimum payments and focus on just one debt at a time. The psychology behind this is that you will get quicker gratification in getting those smaller $300 and $700 balances paid down before tackling a more ominous and lengthier $5,000 pay down.

Items you will need

  • Credit card statements
  • Phone numbers of credit card lenders
  • Calculator
  • Computer spreadsheet or notebook


  • Your credit score may be negatively affected by transferring your high-interest balance to a new lower interest card. Your FICO score reflects your credit utilization ratio. That means having your $5,000 balance spread out over three cards looks better to FICO than having it all on one card, thus eating up the majority of credit on that card. To improve your score, refrain from shifting your balances from card to card. Paying off your debt while it's at the lower rate wouldn't hurt, too.


  • There are debt consolidation companies out here with less than your best interests at heart; beware of hidden fees and inflated promises. Do your homework and know your rights before you enter into any legal agreement.

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