Credit card debt is a huge problem for many families today. Having these credit cards paid off and living debt free is a dream that every family should have the chance to realize. Here are a few strategies for paying off credit card debt.
Making Minimum Payments on Credit Cards
Making the minimum payment is a huge temptation, especially for families who are struggling to make ends meet and minimum payments are high. Sometimes making the minimum payment is the only possible payment the family can make. In this situation, making the minimum payment on time every month is an important step in paying of credit card debt.
While credit counselors will explain that paying the minimum on credit cards will take years to pay the balance and thousands in interest, its time for consumers to look at the minimum payment differently. The mistake is not paying the minimum payment, it is paying the minimum payment even as the minimum goes down.
Instead of adjusting payment each month to only meet the minimum, budget the minimum payment into the budget, and as the balance reduces, and the minimum payment goes down as well, keep the monthly payment at the higher amount. In doing this, many consumers will be able to pay all of their debts off within approximately five years.
Pay off Higher Interest Cards Vs. Lower Balance Cards
There are three ways to look at paying down debt. First is to pay off higher interest cards first, then lower interest cards, snowballing payments together as each card is paid off. So for example, if a consumer has 3 credit card payments:
- 15% interest, $100 monthly payment
- 10% interest, $150 monthly payment
- 9% interest, $90 monthly payment
First pay the highest interest card off, then combine that monthly payment into the second card, making the total payment $250. Then when the second card is paid off, combine the payment into the third card. This will save the most money in the long-run.
The second way to pay off several credit cards is to look at the total balance and pay based on balance. So for example, if there is one card with a low interest rate, but also a low balance, focus on that balance first, so that it will be paid off quickly. Then roll that payment into the next lowest balance and so on. This is often a good method for families with high credit card debt amounts because it provides a quicker reward of seeing one card paid off.
The last way to look at paying off several cards, is to pay in order of monthly payment. For example, if one card has a minimum payment of $500, another card has a minimum payment of $100 and another $50, the consumer can focus on paying down card with the highest minimum payment. The benefit to this, is while it may take longer to get the first card paid off, the rest pay off quickly because of the large amount of cash freed up.
Paying off credit card debt is never easy. While there is no quick fix for credit debt, taking the time to pay the debt off will feel good and teach consumers important lessons about spending along the way.