What is the best way to pay off credit card debt? Some people believe that they should pay off their lowest balances first while some other people believe that they should be paying down the debt with the lowest interest rate first. While both of these methods have a number of benefits associated with them, the choice of what method will be best depends on your current financial situation and your personal preferences. Here is what you should know about each of these methods.
Lowest Balances First
If you have numerous credit cards with similar interest rates and balances of less than $10,000 each, this method may be the best method for you. The goal is to pay off each credit card entirely, starting with credit card with the lowest balance and continuing card by card until all of your debts have been paid off. The people that choose to pay off their lower balances first are often those that are results driven. Seeing the balances of their credit cards drop until they finally disappear is motivating to them and keeps them on the right track for paying off their debt.
The most effective way to achieve this is a simple three step process. First, stop spending with your credit cards entirely, as you will never get out of debt if you continue to create debt. Second, pay the minimum amount for all of your credit card accounts to ensure that none of them go into default. Lastly, put any additional money that you have at the end of the month towards paying down your lowest balance, making an additional payment if you have to. Most credit card companies allow cardholders to make multiple payments during the month through their online website without incurring additional fees.
Highest Interest Rate First
Paying down the credit card with the highest interest rate first also has its benefits. By focusing on the credit card with the highest interest rate, you are reducing the total amount of interest that you will pay during the process of eliminating your debt. While it may take longer for you to pay off a single credit card, especially if the card with the highest rate has a high balance, you can take comfort in knowing that you are making progress and reducing the amount of interest you are paying to your creditors.
Regardless of which approach you choose to take, the key to success is sticking to your plan and carrying it through until all of your debts are eliminated. At times, becoming debt free can seem like an impossible task, but it can be achieved with dedication and perseverance. Just remind yourself of all of the benefits that being debt free can bring, including having more income to spend on other needs and having fewer bills to pay. That should help motivate you until you have reached your goal of debt elimination.