When you want to reduce your debt, one of the first things you have to look at is not just how much debt you have, but what kind of debt. If you only have “major” debt like mortgage and car payments, your plan for reducing your debt will be different than if you have lots of smaller debt like credit cards. Yes, credit card debt can become quite large, but when you purchased your house or car, the loan you took already had a payment plan of when it would be paid off, and you should have that built into your budget. Credit card debt on the other hand, tends to be used to buy things we mostly want, but don’t need, or for emergencies that were unforeseen and couldn’t be covered by savings. We have much more control over credit card debt than we do debt involving housing and transportation.

So if the majority of your debt is credit card debt, paying the minimum every month is NOT a good plan for reducing your debt. In fact, you could wind up paying more than three times the items worth by paying the minimum and the only way you will reduce your debt is to never use those cards again. Reducing your debt doesn’t have to mean paying cash for everything, but it does mean thinking before making any purchase on credit.

Once you reduce (better yet eliminate) your credit card debt, you can look toward ways to pay down those major debts like your house and car. First off, if you have a credit card for every retail store in the area, this is totally unnecessary. It’s ok to keep one or two where you shop all the time, basically because many stores now keep records of your purchases through the store credit card which makes returns much easier and you don’t need to worry about receipts. However, once you get the current debt paid off on them, you should only use them when you know you can pay off whatever you buy when the bill comes in. Retail credit cards have the largest interest rates, so if you don’t pay them off immediately, that deal you got on whatever you bought isn’t such a deal when the interest kicks in.

Major credit cards, you should have no more than two. So if you have more than that, look at the interest rates on all of the cards, then consider calling the companies who are already offering you the lowest rate and see if they will negotiate a good deal for you to transfer the debt from other your credit cards over to them. Often, a credit card company will offer you a special interest rate if you transfer the debt of your other cards over to them. It’s called consolidating your debt, and allows you to make just one payment each month that covers all your credit card debt. So transfer all your other credit card debt to whoever offers you the best deal (and there is nothing wrong with telling them that the other company is offering you a better deal to see if they will beat it), and then cut up all but the two cards with the lowest debt. Now here’s the tricky and difficult part…don’t use those cards anymore unless it is absolutely necessary.

So now you have consolidated your debt and you aren’t using your cards and adding to your debt, but that’s not enough to reduce your debt. As I said before, don’t ever pay just the minimum unless there was some emergency that month and it is absolutely necessary. If you get overtime or bonuses, use that money to pay down the consolidated credit card bill. In fact, any time you find yourself with a few extra bucks, apply it to your credit card debt. Normally, you should put that money in your savings, but we are talking about paying down your debt. Once you have that done, then you can start to think about saving money.