Practical Tips for Paying Down an Existing Credit Card Debt

1. Avoid secured debt.

Don't consolidate your credit card debt with a home equity loan/line. It can be tempting --- the rates are usually lower, and the interest may be tax deductible. However, home equity loans are secured debt, while credit card debts are usually unsecured. If you don't pay an unsecured debt --- you have a bad credit rating. That's not good, but it's not permanent. If you don't pay back an equity loan --- you might find your house being sold on the courthouse steps.

2. Get 0% debt.

The best way to consolidate your card debt is with another unsecured debt. Take a look at getting another credit card with an introductory 0% offer. These deals are getting a bit scarcer as rates climb, but we've listed several of them here, along with a calculator that will figure out how much you can save in interest charges.

3. Pay high interest debt first.

If you have multiple credit cards with multiple balances outstanding, figure out how much in total you can allocate to repayment in a month. Then pay as much as you can on the card with the highest interest rate, leaving just enough to make the minimum payment on the other cards. Once this first card is paid off, move on to the card with the next highest rate, and so on. Our repayment optimizer can do the calculations for you.

However, Part I:

Make sure you make at least the minimum payment required on each card each month. Failure to do so can result in late fees (often $35 or more) and/or a substantial increase in your card's interest rate. And, believe it or not, a card issuer often has the right to raise your rate even if the late payment is on a different credit card!

4. Prioritize saving vs repaying debt.

In most cases, you will be better off paying down your debt before putting money in the bank. While some people say you should "pay yourself first" as a way to save, the math says otherwise --- savings accounts pay a very low rate of interest, and what you do get is taxable. On the other hand, credit card interest rates are usually 10% or more. Bottom line --- a dollar used to repay debt is a more valuable dollar than a dollar saved.

However, Part II:

The one exception to this is saving for retirement. If you are able to save into a tax-deferred account (e.g., an IRA), this should be your highest priority after household necessities and minimum credit card payments.