If you’re like me, then the past month or two of your life has involved getting your financial ducks in a row in order to file your taxes. Now that tax season is essentially over, it’s a good time to take a look at your credit card situation before you take a much-deserved break from obsessing over your finances. If you’ve got any significant credit card debt, then you’re probably thinking of the best strategy to go about paying off that debt. As a former victim of credit card debt, I know that drowning in debt is not fun, and often leaves you feeling trapped. However, I’m here to tell you that you can get that debt paid off, and it’s easier than you may think as long as you are responsible with your spending. In addition to being responsible, stick to the four guidelines below to get that debt paid off most effectively.
- Pay down your highest APR credit card debt first. This point is the most important, and should probably go without saying, but I’m going to say it anyway. If you have several different credit cards that you’ve accrued debt on, you need to pay off the balance that is charging you the most interest first. If you fail to get those high-interest credit card balances paid down, then you will find yourself falling deeper and deeper into the debt hole.
- Always make the minimum payment. Sometimes it may seem as if there is no end in sight to the debt you have accrued. Since I’ve personally been through this myself, I know that there is an end in sight. However, if you fail to make your minimum payments each month, your credit score is going to take a pretty significant hit so that even when you have all your debt paid off, you will end up with a poor credit score, which isn’t going to be useful when it comes time to buy a house or car. Generally, the minimum payment each month isn’t a huge amount of money, so do everything you can in order to get that minimum payment in.
- Consider a balance transfer. If you have a decent credit score but have accrued sizeable debt on credit cards that charge high interest rates, it may be in your best interest to consider a balance transfer in order to consolidate your debt onto a credit card with a 0% APR introductory period on balance transfers. Not all balance transfer credit cards are created equally, however, so you will want to make sure you compare credit cards so that you can find a card that offers a long 0% introductory APR period. The longer the intro period, the more time you have to get that debt paid off without accruing any interest.
- Get rid of debt before trying to save. Generally, the credit card debt you accrue will charge a much higher interest rate than the interest you will earn on cash that you save. While it’s always smart to have a small stockpile of cash for extreme emergencies, most of your income should go to paying down that debt. If you try to save most of your money before paying down that credit card debt, you’ll be stuck in debt for much longer than you need to be, as well as hurting your credit score.
This article was written by Logan Abbott. Logan is the editor of MyRatePlan.com, and a personal finance and credit card expert with over a decade of experience.
Joe is a former financial advisor and media representative for American Express and Ameriprise. He was the “Money Man” at Detroit television WXYZ-TV, appearing twice weekly. He’s also appeared in Bride, Best Life, and Child magazines, the Los Angeles Times, Chicago Sun-Times, Detroit News and Baltimore Sun newspapers and numerous other media outlets. Joe holds B.A Degrees from The Citadel and Michigan State University.
Great tips in this post and I think many areas where some people struggle. We have a friend who has lots of credit card debt. We’ve tried to talk to her about it. We’ve talked about paying the highest interest card off first while paying the minimum on the others and about balance transfers. She’s in the position where she has to pay the card that isn’t going to send her to collections first as she’s behind on the all. The problem is when they can’t see the immediate results, that’s where they run into trouble. Debt doesn’t dissapear that way though, I’m afraid. Cheers mate.
I only have a 0% balance since the 3% fee was cheaper than taking a loan, and I could repay it by the time it runs out. The danger with 0% transfers is if you only make minimum payment, then keep transferring at the end of each period.
Not to mention on the second point, if you fail to make the minimum payment, credit card companies will usually raise the interest rate even higher than it already was making it even harder to pay down.
Good, common sense advice. I think many folks should avoid getting a couple of credit cards until they have their financial house in order. It makes very little sense to charge stuff you can’t afford…
When you know you have a debt, you can’t really save that much. It’s like half of your brain is trying to save while the other half on paying your debt. That would be quite difficult to manage. It would be better if you can focus on one thing at a time.
Great post, and lots of good info here, Logan. We are in the beginning of our debt payoff process, and you’re right; it’s tough. It was good to hear from your article though that we can get through it. 🙂
failing to make your minimum payments will not only hurt your credit scores, but it also won’t help you pay your debts. Especially in a case where you have a special rate credit card, missing a payment will give your credit card company all the more reason to increases your interest rates! Thus, making it even more expensive to carry a balance.
We have found we need that emergency fund even if we have debt; otherwise we go back into debt. :p You covered that, though. Have looked into doing the balance transfer thing, too. Haven’t gone through with it, though. Probably silly not to.
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