Un-weaving the tangled web of debt created by multiple credit cards, student loans, auto loans and department store cards is not easy. It will take discipline. A goal oriented plan is a good idea as well. In order to reduce debt safely you first need to take a hard look at how you got there in the first place.

We are accustomed to it and we are encouraged into it… living beyond our means. Companies make billions of dollars by lending us money to buy things we can’t afford. We use our credit cards and take out loans looking only at the cost of the item or service we are purchasing. Rarely do we consider the interest we will pay over the life of the loan.

Your first step should obviously be to shred all your credit cards immediately and just stop using them. Next you’ll need to truely focus on paying off the balance. This is done by paying at least twice the minimum payment each month.

You will most likely need some sort of Visa or MasterCard because many things in daily life depend on this. I would suggest a debit card from your bank. It is a Visa or MasterCard but it does not accrue an interest, it simply withdraws money from your account.

Credit card companies generally bill for the minimum payment on a balance. These range from 2% to 2.5% depending on the loaner. 2.5% of a thousand dollars is a mere twenty five dollars. In your naivety this seemed a great deal. However, how much of that twenty five dollars actually goes towards paying the balance of your loan? If your credit card has a 9% interest rate and you are paying 2.5% of the balance each month, it will take you 5 years to pay it off and you will have paid an extra $228 for your purchases. 9% is pretty low and having only $1000 balance is ridiculously low. Also, this example assumes you’ve stopped using the card. If you were to sit down and do some of the math you will be horrified.

After cutting up all your cards and tallying up all your balances you will need a plan that you can stick to so you can pay this off once and for all. You can always just bite the bullet and live lean for a while or you can apply for a consolidation loan. A consolidation loan will pay off all your credit card debts and result in a single monthly payment to one lender. You will of course pay even more interest this way but it does simplify things.

Living beyond ones means is very easy. In the long run though it develops bad spending habits and accumulates huge interest rates that do nothing more than add to the cost of your purchases. To reduce debt takes an extraordinary effort and discipline and a willingness to live beneath your means for a while. However, the sooner you get started with your debt reduction, the sooner it will be over with and the easier it will be to handle.

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