When it comes to credit card debt, I subscribe to a simple theory: The best way to get out of a hole is to stop making it deeper (i.e., stop using your cards). Here's a seven-step guide to regaining your financial footing.

  1. If you have a credit score of 560 or below (you can check yours at myfico.com), you likely don't have much negotiating power, but it's still worthwhile to ask your existing card company to lower your interest rate. If they won't, list your credit cards in order, from the highest interest rate to the lowest.
  2. Each month make the minimum payment due for every card on time.
  3. On the card with the highest rate, add as much to the minimum as you can.
  4. Keep at this until the highest card is paid off (don't cancel the card once you've paid it off, as this hurts your FICO score, simply hide it away or take a pair of scissors to it.)
  5. Add the amount you were paying on that card to the amount you've been paying on the second-highest-interest-rate card. Continue to make the minimum payment due on all the other cards.
  6. As you start to pay down this debt, your score should rise, and you'll eventually be able to qualify for cards with lower rates or transfer your remaining debt to a card with an initial rate of zero percent.
  7. If you still aren't able to transfer all of your debt onto the new, lower-rate card, simply focus on moving your highest-rate debt to the new card.
From the July 2005 issue of O, The Oprah Magazine

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