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From the Experts at Credit.com

Tips for Paying Off Credit Card Debt

by Lucy Lazarony

Paying Off Credit Card Debt

Want to take charge of your financial life? Pay off your credit card debt.

High balances and high finance charges can put a real drain on your wallet and limit your financial options. And if you let those balances linger long enough, they could keep you from achieving other important goals and dreams, such as buying a home.

Plus high balances on your credit cards can be bad for your credit scores. Low credit scores usually mean you will pay high interest rates, and with high interest rates, it’s harder to pay off debt. It’s truly a vicious circle. You can find out exactly how your debt is impacting your credit by checking your credit score for free at Credit.com. You’ll get a (truly) free score – two in fact – plus you will learn exactly how your debt impacts your credit.

Whatever your financial goals and dreams, paying off high-interest credit card debt is the first important step in the right direction. These pay-down tips and strategies will show you how.

Get organized. Step 1 is getting organized. Gather up all your credit card information. Make note of the balance, interest rate, due date, and minimum payment for each card. How bad is it?

Do you have lots of balances spread out over lots of different cards? Do you have one big balance and several small ones? Have you consolidated your debt to one card but can’t seem to make any headway on your balance? Have you been playing the balance transfer game for months and months?

Next, add up the minimum payments on each of your credit cards. How much money must you pay each month just to stay current on your credit card bills? Can you afford to pay more than the minimum payment on one or more of your cards? If so, get ready to do it.
Debt can pile up for all kinds of reasons. Paying it down is pretty straightforward. Pick a pay down strategy and stick with it until your balances are paid off in full.

Let’s take a look at three different credit card debt pay-down strategies

Pay off the balance with the highest APR first

From a dollar and cents point of view, this strategy makes the most sense. With this strategy, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards. Once you pay off the balance on the card with the highest interest rate, you move on to the card with the second highest interest rate, and so on.

Doubling or tripling your minimum payment on the card with the highest interest rate is a good way to start. Whatever payment boost you can afford, do it and stick with it. If you start by paying $150 on a credit card, keep on paying at least $150 each and every month until the card is paid off.

Be sure to stick with your boosted payment amount even as your balance and minimum payments slip lower and lower. Remember: the aim is to get your balance to zero. Easing up on your payments as your balance creeps lower will slow your progress.

Pay off the card with the lowest balance first

This strategy is a great way to build up a little momentum. With this strategy, you increase your payment on the credit card with the lowest balance, while continuing to make the minimum payment on the rest of your credit cards. Once you pay off the card with the lowest balance, you move on to the card with the next lowest balance, and so on.

It’s quicker and easier to pay a $500 balance down to zero than a $2,500 balance. And it feels good to pay a credit card bill in full, no matter what size balance you begin with. Plus, every low balance card that you pay in full is one less minimum payment that you have to pay each month. By knocking out one or two smaller balance cards, you’ll have more money to focus on larger balances.

Consolidate your debt to a single card or loan

Like things simple? This pay-down strategy might be for you. By consolidating your credit card debt to a single card or debt consolidation loan, you have a single payment to make each month rather than four or five. One payment to pay each month – that’s it. You can even automate payments so you never have to worry about paying late. Just be sure to choose a payment amount much more than the minimum each and every month so you can make some real progress on paying off your debt.

This payment strategy makes things easy, but it also makes it easy to let things slide. So pick a payment amount, double or triple your minimum payment (or whatever you can afford), and be sure to stick with it.

Stop charging. Whatever pay-down strategy you choose, it’s essential that you curb your credit card spending. It’s awfully hard to pay down credit card debt when you keep ringing up new balances each month. Put your credit cards on ice while you focus on paying down card debt. Pay with cash, check, or debit card instead. If you must use your credit card, only charge items you can pay off in a month or two.


  • http://www.credit.com/ Credit.com Credit Experts

    What do you mean by paying the apr (annual percentage rate)? Do you mean paying the minimum payment? If your balance is below 30% of your credit limit (less than 10% is even better), paying the minimum should not affect your score much. You can read more about it here: Making Sense of Your Credit Score

  • http://www.credit.com/ Credit.com Credit Experts

    It probably is not. In addition to the 10% penalty, you will pay taxes on your withdrawal (the money grows tax-free until you take it out — and then you pay taxes on what you withdraw). So, if you were in the 28% tax bracket, you’d likely spend nearly 40% of what you’ve saved for retirement. (Also, if your financial situation is so desperate that bankruptcy might be an option, be aware that retirement savings are often protected.) Please get some professional advice before deciding how to proceed. but in general withdrawing retirement savings to meet current debts is a very bad idea. These resources may help:
    5 Questions to Ask Before Using Retirement Funds to Pay Bills
    Filing for Bankruptcy: The Difference Between Chapters 7, 11 & 13

  • http://www.Credit.com/ Gerri Detweiler

    You’re right: card issuers will not settle if you are current. So you have to look at all your options and decide which one is best for your overall situation. We wrote about them here: 5 Ways To Get Out of Debt: Which Will Work for You?

  • Marie

    Hi, Is it true that if a credit card company lowers your interest rate then reduction only applies to future purchases? Thanks, Marie

    • http://www.credit.com/ Credit.com Credit Experts

      It might be. It’s important to be sure you understand what you are negotiating. A reduction on your current balance? Future purchases? Or both?

  • http://www.credit.com/ Credit.com Credit Experts

    It will depend on how the rest of your credit picture looks. Among other things, the amount of available credit you are using (anything higher than 30% will hurt your score, even if payments are on time), the mix of credit, the amount of time your account has been open and other factors are considered in calculating your score. But the biggest thing you can do is make payments as agreed. Here are more resources that may help you:
    Making Sense of Your Credit Score
    Credit Score Updates: How Long Will It Take?


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