I normally write articles only the wealth side and frugal living or on life philosophy. However, I have been getting a lot of queries on how to reduce debt. And most of the questions are relating to credit card debt..so here is a post. More like a guest post, this is NOT a topic on which I will write too much anyway!! So here are the steps towards reducing credit card debt to zero, or very close to zero…

  1. Stop charging: One of the most criminal things that a bank does is to charge you interest from the minute you charge, so stop charging. During this period of debt reduction that you are doing, use cash (India is still a cash economy), or use your spouse’s card, so that your debt and principal burden do not go up.
  2. Pay more than minimum: If your credit card debt is Rs. 65,000 you may have to pay only about Rs. 2500 per month. Given our rates of interest (compounding @ 42%) it will take you FOREVER to repay this debt. So instead of paying Rs. 2500 per month make a payment of say Rs. 5000 per month. If you cannot pay this much, at least ensure that you pay Rs. 3-4k a month, so that your debt goes down faster.
  3. Multiple credit cards? If you have more than one credit card, choose the order of repayment, depending on what makes sense to you. In most cases, you should down pay the highest interest card first. So keep paying all the credit cards, and pay more on the most expensive credit card.
  4. Pay as often and as much as possible: Once you are behind schedule you need not be concerned about dates of payment. Pay as often as possible, and as much as you can to pare down the debt.
  5. Some people get into this ‘I must have 8 months expense in a bank fixed deposit’ mind set. Break your fixed deposit, withdraw your mutual fund, take from your ppf or pf, but get out of credit card debt. It is a crippling rate of interest.
  6. Look for ads of cards at 0% balance transfer and IMMEDIATELY transfer as much as you can, and start paying off that card also at the minimum that they are asking you to pay. This holds your interest costs at a lower level.
  7. Borrow from a parent, sibling, girl friend, wife, – if your financial condition and ego allow you to! If you can raise interest free money, take it and pay down the credit card, and then have the discipline to pay off the friendly loan at a quick pace.
  8. Get a personal loan – and make sure it is at a lower rate (your credit score decides the rate, but it is surely lower than the credit card rate) and use it to pay off the credit card debt.
  9. Helping somebody else pay off credit card debt? Please know how to do it….it is not easy.

See what I saw a friend do….http://www.subramoney.com/2012/03/repay-credit-card-debt/

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