Credit Card Tips for Dimming your Debt

Debt is a pain. Seriously. With American culture the way that it is, debt is a normal part of life, but it doesn’t make it any less of a pain. Are you one of many Americans who are trying to reduce their debt? Good!  Are you just paying extra on your credit cards or do you have a plan? I encourage you to try and make a game plan for getting rid of that extra debt… or preventing it from happening again.

Not in debt? Stay that way!

-  Be responsible with your credit card usage. Have your spouse, another family member, or a friend you trust keep you accountable.

-  Always pay off more than you owe. If you can afford to pay off your balance every month, do it. It’s great for your credit score and it’s a lot less of a hassle in the end.

Already in debt? Get out efficiently!

If you’re paying off several credit cards at a time, always use the system of lowest balance with highest interest first. Then, after that’s paid off, apply those payments to the next lowest balance with the highest interest. Let me show you an example. The numbers are totally hypothetical, and most likely you will not see a card with the interest rates I mention. It’s for simplicity’s sake.

Say you have 4 credit cards:

Credit card A: $400, 5% interest, $20 minimum payment.
Credit Card B: $1000, 10% interest, $40 minimum payment.
Credit Card C: $600, 7% interest, $15 minimum payment.
Credit Card D: $400, 15% interest, $10 minimum payment.

Now, you’d start off with the lowest balance with the highest interest; that would be Credit Card D. Some people would want to finish Credit Card A’s balance first, but think about it, you’ll be paying more in the long run if you pay off the lower interest card first. You start paying $50 a month on Credit Card D and the minimum on the rest of the cards (Tip: If you can do this and pay more than the minimum balance on the others, do it!). In 9 months, you’ve paid off Credit Card D. The other balances should be down a little bit at this point.

You then move to Credit Card A (next lowest balance). You now transfer the $50 a month you were paying on Credit Card D and pay it on top of the minimum payment for Credit Card A. So, you’re now paying $70 a month on Credit Card A. You pay the card off in about 6 months, all the while still paying the minimum on the rest of the cards.

Next is Credit Card C. You take the $70 you were paying per month and pay it on top of the minimum payment. $85 a month is going to Credit Card C.  9 months later, boom, another card down. When you get to Credit Card B, you are now paying $125 a month (which, you were paying in the first place, you just had to split it between 4 cards). You’ll have that one knocked out in 8 or 9 months.

Long story short, you would take debt that, had you paid the minimum payment, would have taken you almost a decade to pay off (and several hundred dollars more than what you actually charged), and will pay it off in about 3 years. And, after you pay them all off, you have an extra $125 a month to do whatever with! Better than owing the credit card companies for the rest of your life, huh?

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