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Slashing your credit card debt can save you thousands of bucks. How? Read on.

For example, John owes $5,000 on his credit cards and he is paying an interest of 18%. Credit card companies, especially the stable ones, require a minimum payment of $150 a month. However, making a minimum payment will lead to years of debt, regardless if you are making purchases. Speaking of, let’s say he does not make any new purchase and pays $150 a month for the next few years. It will take John at least three years to settle it, not to mention he will pay around $2,000 in interest.

The average amount of credit card debt incurred by a household was $5,746.92, based on a Harris Poll administered for NerdWallet. Indebted households record $15,354.74 debt.

Looking at the figures above, that could be a considerable amount of savings. Settled credit card debt can free up money which can be used to other items such as investment. So here’s how you can earn (at least) 18%: cut the debts.

Let’s presume you have two credit card debts. You need to classify these debts based on interest rate. Instead of paying these debts equally, you may want to make the largest payment on the card that incurs the highest rate. Even if you reduce debt, maintain a cash reserve or emergency fund to avoid running out of cash.

Next, set goals. Map out a feasible plan to settle such debts the soonest possible. List down where your money is going. Also, make a cash flow analysis to determine unnecessary spending. And avoid new debts by not using your credit card.

Just like money, make the credit card work for you. Once you have settled your debt, once you make purchases, pay the bills on time to avoid paying interest again. Take note of the interest-free loan offered by banks. It is a loan provided from the purchase date to the billing date. These institutions do not expect people to use this technique. The grace period, however, is not applicable to cash advance on a card.

Credit card companies offer free loans as they know many clients will be revolvers, referring to people who carry a certain amount of balance from one month to another. They get as many revolvers as possible to generate money, of course.

Let us end the discussion with an advice: never allocate more than 10% of your income for paying credit card and other related debts.