How to Pay off Credit Cards As Soon As Possible
Credit card debt can get high rather quickly, especially if the consumer is not watching balances closely. Credit cards typically have the highest interest rates of any type of debt, making the debt a hard one to pay off. However, with a budget and a plan a borrower can pay off credit cards as quickly as possible.
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Instructions
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The "Debt Snowball" Strategy
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1
Create a family budget. Categorize all spending based on expenditures from last month's checking account statement.
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2
Analyze your spending. See if there are categories where spending can be reduced, or at least temporarily eliminated until credit cards are paid in full.
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3
Work extra shifts, ask for overtime or get a second job to increase your income. Sell unused personal items from home to earn extra money. Use these extra funds to pay down debt.
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4
Call each credit card company and ask for a lower interest rate if you have paid the debt on time for a full year. Ask about any balance transfer offers.Try to transfer balances to the smallest monthly interest, if possible.
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5
Rank your credit card payments from the lowest to the highest. Pay the minimum amount on each credit card other than the smallest monthly payment. Funnel all extra funds toward the smallest monthly payment's debt. Pay on it until paid in full, generating what financial counselor Dave Ramsey calls a "debt snowball," or momentum toward becoming debt free.
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6
Tackle the second smallest monthly payment debt. Apply all extra payments on this debt until it is paid in full. Repeat the pattern until all debts are paid in full.
Highest Interest Rate First Strategy
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7
Follow steps 1 through 4 above.
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8
Rank your debts in order from highest to lowest interest rate.
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9
Tackle your highest interest-rate debt first. Place all your extra payments toward the highest-interest rate debt while maintaining the minimum payment on the other debts. Continue until the highest interest-rate debt is paid in full. Now, tackle the next lowest interest-rate debt. Continue until all debts are paid in full.
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Tips & Warnings
Consider both debt payment methods. Each has its benefits, and both allow the borrower to reduce and pay off debt. Some families choose one method; others use a combination of the two. Attempt one strategy and if you don't find success, switch to the other.
Reduce your spending by analyzing your utility payments. See if you can save funds by switching providers, bundling services or reducing unnecessary features from your cable or cell phone plans.
Be aware that it is hard to cut spending to reduce debt. If you have trouble one month, start over the next month, learning from your mistakes.
References
- Photo Credit patriot credit card image by Ray Kasprzak from Fotolia.com
