Why paying down credit cards is critical right now

By: Michelle Carolla | SCNow
Published: May 08, 2009

Paying off debt right now is just as important, if not more so, than before the recession. It's just how do you work on debt when so many are just trying to hold on to their job?
Here's the scenario: you lose your job, you need your credit cards to live on, you run up the card balance and then the banks cut your credit limit and increase your interest rate. The same scenario is happening all across the country. So in order to keep your credit limit, you need to find a way to lower the balance.
Financial Expert, Suze Orman recommends to stop swiping your card and focus on paying the one with the highest interest rate. Pay the minimums on all your other cards and work on getting the high rate card paid off and keep doing this until they are all paid off.
Just make sure you read your statement each month to make sure the card company didn't change the rules on you. The other problem is if the card company lowers your balance, it’s probable your credit score will drop. A drop in your credit score can mean your card companies can cancel your card if they feel you're a risk. So how do you tackle this merry-go round?
Orman suggests, if at all possible, pay more than the minimum payment, even a small amount shows good faith to the card company.
Try to transfer the highest balances or cards with the highest rate to a zero or low interest card.
Monitor your credit score, pay debt on time and reduce the balance to limit ratios. Any falter on your part can drop your score.
Resist using your savings or retirement to pay debt, savings is very important at this time.

One important note is in this time of uncertain employment, building a reserve is critical, even more so than paying debt. It's important to find a way to cut back on any extra expenses and put as much as possible towards your savings and debt.
It's impossible to predict what will happen in this economy so preparation and protecting your financial security is what's needed.