First strategy is to find a bit of extra money in your budget somewhere, let's asssume you've found $50 a month. Second thing is to apply the minimum payment rule to your nasty old credit cards (debt cards) and store cards. Third strategy is DO NOT USE YOUR CREDIT CARD AT ALL. Ask yourself, is this about reducing debt or creating debt, yes it's about reducing debt. Remember if you don't have the cash then you can't afford it.

Alright, you've got your $50 a month to put towards debt reduction, now we want to show you how to reduce debt, so let's create an imaginary person and let's call her Sue. (Wonder why I thought of her?). Sue has three credit card debts, $4000, $3000 and $1000, and a $2000 store card that she's paying off. So how on earth is $50 a month saved from, in Sues case, careful food shopping going to help her reduce debt?

Simple answer is Sue is going to take that $50, add it to the minimum ($50 is 5% of $1000), payment of her smallest debt, $1000, and pay the new total of $100 every month until the debt is reduced, then gone completly. She's going to stick with her current minimum payments are on her other cards, she's not going to pay the reducing minimum that the credit card company calculates each month. Some credit card companies charge a minimum of 3% - the rats - they're just doing that to trap you longer, don't fall for it.

OK, so on this debt reducing plan that first $1000 is going to take 10 months to pay, but then it's gone for good. Sure we haven't included interest charges, so let's add another month to the payment time to allow for that, so eleven months. Remember Rome wasn't built in a day, and your debts won't be gone in a day either, but you'll begin to see the plan come together in this next step.

Reduce Debt - Reduce Debt - Reduce Debt

Now Sue's going to take the $100 she was paying on that $1000 credit card and pay that on the next smallest debt. That would be the $2000 store card, which after 11 months of original minimum payments of $100, now has a balance of around $1000 (I've added an extra $100 for the interest just to keep it simple). So card 2 with its new balance of $1000 is now being paid off at the rate of $200 a month, the original minimum which was $100 at the start of the whole process, and the additional $100 from card 1. So this card will be paid off in 5 months.

Let's move on to ‘debt card' 3. Now this started with a balance of $3000. Original minimum payment of $150 a month for 16 months (11 to pay the first card and 5 to pay the second) will have reduced the outstanding amount to $1600. So now Sue will take the $150 original minimum she's been paying for the past 16 months and add the $200 she was paying on card 2, so $350 a month in total. So 4 and a bit months to pay this off, let's call it five.

So let's review. 21 months of this debt reduction plan have gone by, a total of $6000 has been paid off. What happens when Sue attacks the next debt of $4000? After making the original minimum payment of $200 for 20 months it's nearly paid off, let's add two months of payments to allow for interest. So in 22 months she has reduced debt by $10,000. Brilliant!!

But is this so great, wouldn't Sues debts be paid off if she had just continued to pay the minimum on her cards anyway? Well no, she wouldn't be much better off and the reason for that is that the minimum payments of 3-5% that the card companies charge are not for your benefit. Paying down debt like this makes debt reduction an almost impossible task for you. You will remain a payment slave to the ‘debt' card companies forever! Take the $2000 credit card payment Sue had, if she had continued to follow the ‘debt card' companies debt reduction technique and paid the minimum on that card she would still be paying the card off 30 years later. Yes you heard right 30 years!! This is not a great debt reduction plan is it? And she'd have paid over $8,000 in interest alone. That's at 19.8% which is at the low end for this type of credit.

How long do you think those other loans are going to take? Quite simply if you stick with the minimum required to reduce the debts on your cards you'll still be paying them when you're collecting your pension. In fact your pension will be paying them. So stop creating debt and start the repairs to your financial health by reducing debt starting today. Good Luck.