First, Get Out of Debt
Your first goal is to live within your means — no more purchases on charge cards — while you pay off your consumer debt.
1. Transfer your consumer debt to zero-percent or low-interest credit cards.
The lower the interest rate, the less you will pay each month. Typically, such offers are sent to customers with good credit, but you can also find them online. (Compare offers on creditcards.com and bankrate.com.)
Credit-card companies usually extend the offer for only 12 months, and charge a 3-percent transfer fee for switching balances from other cards. The best offers require no transfer fee, but these are rare. If you haven’t paid off your debt before the offer expires, you’ll have to transfer the leftover balance to a new zero-percent or low-interest-rate credit card.
2. Set up automatic monthly payments through online banking.
This will ensure that your zero-percent or low-interest credit card payment is never late. You don’t want to lose this great rate.
Log onto your bank’s website, open an account, and sign up for online bill paying. Then create monthly payments for other bills you can start paying automatically. These bills should include predictable charges, such as a mortgage payment, and payments to utility and phone companies.
3. Add up the payments you have been making on your various higher-interest credit cards...
...and pay at least that total — preferably more — each month on your zero-percent credit card.
4. Don’t close your paid-off credit card accounts — having unused credit raises your credit score.
The higher your credit score, the lower the interest rate you’ll pay on mortgages and car loans in the future.
5. Keep your paid-off credit card in a safe but difficult-to-access place.
You might give your card to a family member. Explain that you’ll ask for it only in case of an emergency. Another option is to place the card in your safety deposit box.
Or — if you’re an extreme spender — try freezing the card in a block of ice in your freezer. By the time the ice melts, you will have figured out whether a prospective purchase is something you need or just something you want.