With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.

In terms of interest rates, the trend has been that they are rising. Considering that back in May 2009 the average card rate was 13.94% and today is a full 1% higher, credit card debt reduction is something that can easily curtail the amount of money we spend on our debt.

Rising rates are not the only reason people should concern themselves with credit card debt repayment. Let’s look at credit scores. With revolving credit, people are more apt to see their scores tank because more than 65% of their FICO score is based on two major factors: utilization and repayment history.

Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.

Negative scenarios like these are never fun to explore. Still, we need to hedge ourselves against the three negative economic facts that are going on right now. Again, they are: card rates are increasing; the economy is tough right now and the end point has not been clearly set and; credit scores are more and more important to the lenders we want get credit from. Without question, we need to put a plan for credit card debt reduction in place sooner rather than later.

It is amazing to hear some of the different reasons people have for carrying a certain amount of debt. And there are as many different reasons as there are to make-money-quick schemes. However, we all share one universal care when it comes to financial well-being and that is how to achieve it. Credit card debt reduction is one such way. And with things the way they are now, it makes much more sense to tackle such debt now before it is too late.

There are times when just meeting your financial needs will leave you with a tremendous amount of debt. When it comes to repaying debt and properly managing your finances, you have plenty of options available to you. The best way to repay debt involves focusing almost exclusively on higher-rate debt and gradually working your way to lower-rate debts. Keep in mind that all debt need to be paid, but keeping the lower-rate debt to the minimum amount and channeling remaining funds to the higher-rate debts will help you get out of debt quicker.

Start by listing all of your debts, including creditor name, amounts, interest rate, and the minimum amount due. It works best when you list them in descending order, starting with the higher rate debt first, and ending with the lowest-rate debt. This way, you know at a glance just how much you need to pay to each creditor and which should be your primary, secondary, etc., focus.

With the completed list before you, determine how much you need to repay to all of your debt on a monthly basis. This means adding up the “monthly minimum due” column. Balance this amount against the funds you have available each month to pay toward your debt. Hopefully, you still have money left over. This amount should then be allocated to the top creditor (i.e. the one that charges you the highest rate). It makes no sense to spread out this extra amount - direct this extra money to your top priority.

An essential element to successful financial planning includes establishing a savings account. When you have debt, however, savings should be moderate with the primary focus being repaying that debt. However, savings of even $10 per paycheck will accumulate rather quickly if left untouched, and this is extremely helpful when it comes to making a lump-sum payment against your debt. Alternately, you can discipline yourself to spend only what you have saved in this modest savings account when you have an urge to splurge.

One option that you should not dismiss is borrowing from friends and, more likely, family to repay higher-rate debt. Typically, family will not charge 19% interest on the money they lend. In fact, they often lend at zero-interest, which means that you will be far more effective in repaying family than you are in repaying credit debt. If your family has the means to lend the money, consider it carefully in order to get ahead financially.

If you have large amounts due, your progress will be much slower. Keep this mind when tackling such amounts as it can get discouraging after a few months of seeing little progress. Once you start clearing your debt, you will start seeing improvements to your personal finances almost immediately and, within months, even your credit score.

When it comes to repaying debt, a lot of people will review their personal savings rate, or PSR. In plain English, your Personal Savings Rate is the amount of income that you do not consume. The average PSR in the United States has hovered around 4% but given the recent economic problems and depressed consumer confidence, that level has recently touched as high as 6%. With an increase to PSR, people are finding they are better able to repay debt and weather future economic crises.

When it comes to increasing our PSR percentage, there are several things we can do. For example, spending only 80% of what we normally spend on discretionary living expenses (that means spending just $800 for every $1,000 we spend now), we will not only become better money managers, but we will manage to save enough to lead to extravagant lifestyle in retirement. Here are some more steps that we can take to increase our PSR:

Start By Making a Focused Effort

An obvious starting point would be to make a focused effort to set aside money in an actual savings account. The easiest way to find success with this method is start with a small amount (say $50 of every pay check), and gradually increase the amount as you adjust to your new budget. As well, the act of establishing a savings plan will allow you to become better off financially.

Create a Budget

Examining your budget and making adjustments will also help. As noted earlier, reducing monthly expenses and living off 80% of your regular spending might be easy for the first month, but you will need to write up a budget in order to ensure sustainability in the following months. Cutting down on luxury spending like entertainment and fine dining alone can help you find the funds necessary to increase your PSR.

It Takes Time, Be Patience

Be disciplined all along. This is not something that you have to do for a month or two and then revert to your normal spending habits. Keep a long-term perspective in mind to gain maximum benefits.

Patience

You will need to practice patience when it comes to improving your personal savings rate. Results may take time, but they will surely appear. By practicing patience, you will find that the results will actually appear quicker than you originally thought. A best practice is to ignore the savings statements when they come in the mail until a full year or two (or more) have passed.

Self-Control

Keep your flexible and open spending habits to the minimum. Now that you are on a budget, you cannot go out and buy the latest products in the market especially if you do not need them.

Monitor Your Progress

You would also require keeping a track of your spending habits. Remember to keep a close track so that you can work on it to improve it further and to stay focused on your long-term savings goal. This might mean recording every dime you spend or simply matching balances at the end of the month to your budget.

Allow for Adjustments

As a final note, you will want to allow flexibility in your plan. This essential ingredient is often lacking in budgeting plans and is one of the leading reasons why most of them fail. So, if you find yourself behind plan after a month, a quarter, or even a year, don’t sweat it. Incorporate flexibility in your plan and make the necessary adjustments to get back on track or change the budget altogether.

In summary, an increase in you PSR can guarantee long-term happiness and a minimized stress load when life throws those unexpected curve balls. Building a plan and keeping at it will afford you better control over your finances and as you start to celebrate small successes, you will never look back.

The average American carries balances of $22,100 on 13 different credit cards. If you are like the rest of us, then you also carry credit card debt and it is no fun! As you know, such debt has a tremendous impact on our personal finances, even though the circumstances that led us to this stage are often outside of our control.

Debt such as this may have resulted from impulsive spending, personal expenses, medical costs, and other unplanned emergencies. Regardless, our credit card debt needs to be dealt with effectively as such debt affects our budgeting and personal relationships, whether we realize it or not. Once we understand what caused such debt, we will be able to recognize the signs before they lead us into deeper trouble.

1. Unnecessary spending: One of the easiest ways to recognize when we are spending more money than we earn is to understand that paying on credit is exactly that - spending money we do not have in one way or another. Once we acknowledge that such spending habits quickly lead to financial trouble, we can better control this type of spending (which is usually for unneeded luxury items and entertainment). Once we cut back on such spending, the money we save a result can be deployed toward repaying our credit card debt, which is what we should be doing in the first place.

2. Huge unpredictable expenses: In many cases of credit card debt, the balances grew as a result of a series of huge expenses such as unexpected car repairs or home repairs. Even though we recognize that we should repay such debt as soon as possible, other unexpected expenses normally hinder such intentions. However, these expenses end at some point and repayment can happen by curtailing discretionary expenses elsewhere. The money we save by limiting other types of spending should be utilized repaying this debt..

3. Prolonged Medial Expenses: When someone you care about is ill and requires prolonged medical attention, paying the medical bills with a credit is both convenient and often our only method of payment. Often, however, the treatment and/or prolonged hospital stays push our credit to the limit or beyond. This is where additional credit cards come in handy. If we are not excessively careful during such emotionally difficult times, we will rack up our balances rather quickly. Ultimately, we may find ourselves unable to make the minimum payments on our credit card debt, which will not only impact our overall financial health but our credit score as well. For this reason, medical expenses are one of the most popular reasons why people file for bankruptcy.

4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee’s office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.

Our best option when it comes to dealing with credit card debt is includes reducing expenses by leading a simpler life (note: this does not mean sacrificing life altogether). By making high-rate credit card debt a priority in our budgeting plans, we will not only eliminate steep credit card interest expenses, but can better prepare ourselves for future financial goals and expenses which often require disciplined savings.

Paying our bills on time is a crucial factor when it comes to personal finance management. Most people at some point in their lives, and due to some reason or other are unable to pay their bills on time. The most important thing here is that we need to plan for our monthly expenses and manage our personal finances in such a way that we are paying our bills. We start by determining our total expenses, including all household bills. As well, we need to remember to save part of our total income. This savings factor will allow us to manage personal obligations in a proper manner should events outside our control make it difficult one month to make such payments.

When we consider any financial plan, the first thing we do is gather all relevant information. When tackling debt, relevant information means all of our bills. With our statements spread out before us, we can add up all of the minimum payments to determine our total obligation. Taken one step farther, we can prioritize each bill based on the interest-rate charged by the creditor.

Next, we must calculate the minimum amount due of our bills; this will give us the total sum that we need to pay on a monthly basis. While completing our calculation, we need to divide the total amount due by the number of pay periods we have in a given month. If we have two pay periods, then we need to split our total monthly debt between our pay periods. Yes, the joys of personal finance! No wonder budgets dont work!

As we can see, balancing our personal finances in an efficient manner is no simple task. It clearly helps if we have adequate knowledge of how to manage personal finances, but most schools never teach this skill. So while paying our bills every month is good and wise, finding the best way to deal with our personal finances, although equally good and wise, is much more challenging.

In the worst of times, we might find ourselves short of funds and paying our bills, while a priority, might not happen that particular month. While such instances are unfortunate, we have two options. The first is that we can revisit our stack of bills and determine whether we can modify our overall outflows by getting rid of redundant or unnecessary expenses (an old gym membership, premium cable, cell phone, etc.). The second involves starting over and examining our expenses to see where have an opportunity to amend the terms of our existing credit agreements (or even asking for a raise if our spouse is the one out of work). Doing so could improve cash flow, even if it means paying a slightly higher rate in the short-term. These decisions and actions are never easy, but they can certainly make a difference between starving and maintaining our credit score.

After we start on a plan of paying our bills, clearing the debts in full will seem like a long, drawn out process. Sadly, this is the truth. No change happens overnight, and paying our bills in full is no exception. In order to stay focused, we need to devise a strategy where we can not only see if we are on track, but also to see how a series of small steps leads to the giant leap of paying out all of our debt.