Tips for Paying Off Credit Card Debt, Part 1

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If you are carrying more than $8,000 in credit card debt, it is time to start considering paying it down in a structured way.  No matter how much you are earning, your money can be put to work for you in sound investments, not endless interest payments for items you bought months or even years ago.

Experts will tell you that the best way to pay off credit card debt is to make a list of your credit cards with the highest interest rates cards first.  Then, for the card at the top of the list, pay off as much as possible each month instead of making the minimum payment.

When that card is paid off, move on to the next high interest rate card and follow the same procedure.  This is known as the snowball process.

Of course, if you choose to pay off credit cards with smaller balances, that’s fine too.  But those high interest rate credit cards can keep you in debt for years and years.

Here is an example.  According to Bankrate, “Paying just the $60 minimum payment on a $3,000 credit card balance would take eight years to pay off the card. It would cost a person a whopping $2,780 in interest.  By paying an additional $50 a month, the debt would be paid off in three years instead,  and they would be spared $1,800 in interest charges.”

In today’s economy, paying off any credit card may seem a daunting task.  However, it is important to carry the lowest  amount of debt possible in order to have a good credit to debt ratio.

This method of paying down debt has been advocated by many experts for some years now, but recent articles indicate a certain level of frustration at the fact that many people seem unable to manage the so-called snowball system of rolling the payments into larger payments to pay off each card.

We are not really surprised. A lack of discipline got them into trouble in the first place, so the person’s ability to follow through month after month in a structured way may also be lacking.  The other issues are rising costs on almost everything, shrinking paychecks, and the most important success factor in the snowball system not being emphasized enough: You have to STOP using the card.

 

Continued in Part 2

Further Reading:

Your Action Plan to Financial Freedom: How to Achieve Financial Independence Even in a Tough Economy (Money Matters)

AVOIDING THE CONSUMER CREDIT TRAP: How to Pay Down Your Debt and Keep Out of Debt (Money Matters)

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