Credit Card Combat

11/16/2008 05:12 am ET | Updated May 25, 2011

Dangerous word, "charge", whether on the battlefield or on a credit card. Confederate General George Pickett charged at Gettysburg and we all know what a debacle that became. Your own relentless credit card charging may have left you, like the general's troops, exposed in ways you never anticipated.

Your credit card company can raise your interest rate, lower your spending limit, and even downgrade your credit score. And that can severely weaken your financial defenses. So, you must take the offensive and attack your credit card debt. But your strategy is key to winning the war.

You may think your first salvo should be to consolidate all of your debt on one card, but hold the cannon fire. That has the potential to blow up in your face and here's why. Pooling all of your debt on one card can put you too close to its spending limit and that makes credit card companies jittery. They may attempt to preempt a perceived risk and lower your spending limit or increase your interest rate or both. And this is no time to shoot yourself in the foot and reduce your amount of available credit.

Leslie McFadden of advises never use more than 30% of a card's limit. "It's better," she says, "to spread your debt around." And since Americans have an average of 9.5 credit cards -- okay forget the .5 -- the point is you should take advantage of your plethora of plastic and fan out your debt.

Next, you want to take out the enemy one card at a time. But should that be the card with the highest interest rate or the highest balance? If these cards are one and the same, first try to negotiate for a lower rate. If you hear "no" for an answer, say "bye-bye" and transfer the balance to a card with a lower interest rate immediately. If they are not one and the same, figure which is costing you more each month and start there.

On the other hand, small victories are good for morale. Paying off a card with a low interest rate and a low balance is ground taken. You can then apply that monthly sum to another card and continue your assault one card at a time.

Now as you're doing this, you may think the war is winding down, but there are snipers in the bushes. You still need to use a credit card because it only makes sense with some purchases. This may tempt you to load up on one with a rewards program. Indeed, you could become a casualty of friendly fire if you don't pay off your balance each month, since the interest rate on rewards cards is almost always higher. Your best bet is to use the card with the lowest rate AND still pay off the monthly balance.

Should your next objective then be to cancel your cards one by one? Believe it or not, the answer is probably not. For one thing it lessens your amount of available credit, and for another, it can negatively impact your credit "FICO" score--way more important than your SAT ever was. So strategically, your next phase should be to have the same number of cards with zero balances on them. Banks and other lenders like to see lots of available credit that is NOT being used.

Lastly, attacking your credit cards can prove as futile as Pickett's charge if you don't also control your spending. One trick to help you spend less is to transfer funds from your checking account to your savings account each time you make a credit card purchase and don't transfer back to checking until your credit card bill is due. The reward for such discipline is literally money in the bank. And unlike the cavalry that never arrived for Pickett, you'll have the reinforcements you need.