Take These 4 Steps to Recover from Credit Card Debt

How to make a fresh start—and stay debt free.

The average American owes more than $6,000 in credit card debt, according to the U.S. Credit Score Climate Report. Fortunately, a few simple steps can help you exchange your debt for a healthy bottom line.

Step 1: Get organized

“Making a budget is the centerpiece of getting out of debt,” says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

Start by tallying up your monthly income and expenses, and include the minimum monthly payments on all your debts. Consider setting up recurring payments through your bank’s online bill pay service to help you get organized. Next, look for regular expenses you can cut out, like cable TV or eating out.

Then, add whatever money you have left over each month to your recurring payment on the credit card with the highest interest rate. For example, if you have a $6,000 balance on a card charging 18 percent, pay $300 a month instead of $200 and you’ll eliminate the debt 17 months faster, saving more than $800 in interest.

Step 2: Consolidate your debt

Rather than juggling several balances, consider transferring all of them to the card with the lowest interest rate. You’ll have to pay a transfer fee – typically 3 percent – but you may reduce your overall interest. Meanwhile, you’ll make it easier to manage your debt, reducing the likelihood that you’ll miss a payment on any one card.

Step 3: Ask for a lower rate

You may be surprised how flexible card companies can be. With one phone call, you may end up with a significantly lower interest rate. This can save you hundreds or even thousands of dollars—and help you ditch the debt more quickly.

Step 4: After your balance hits zero, keep it at zero

Commit to paying off your credit card balance every month. Keep budgeting so that you don’t spend more than you make. Also, save a few months’ worth of expenses in a safe, easily accessible account so an emergency like a health problem or layoff won’t send you back into debt.