How To Pay Credit Card Bills Off Faster
It can seem that paying debt down is excruciatingly slow. The process moves slowly in the beginning, but it picks up steam as the committed individual sticks with the plan. The process is the same for amortized debts that are calculated to be paid in level payments over the full course of the loan, but credit card debt is revolving debt, which is treated differently. Every credit card statement demonstrates how much of the previous payment went to principle and how much was eaten up with new interest charges. Debt consolidation may be the answer, but there are other approaches as well.
Pay Off Credit Cards
Credit card debt is the most expensive type of debt, by far. Getting rid of credit card debt is the single most essential key to finding more money to pay off other debts, all of which likely carry far lower interest rates.
There are two schools of thought on how to attack paying off credit card debt, but both begin with stopping the bleeding. It is essential to stop creating debt to worry about. Further, study after study concludes that we spend more at the checkout when we use a credit card than when we use cash. Most people will spend less right away when paying only cash for every purchase. A Time article shared that there are benefits of using greenbacks over plastic. That is the hardest step because it involves breaking one habit and beginning a new one. It is crucial to paying off debt, however.
The next step is to begin paying off credit cards. This is where there is disagreement on the best approach. Either way, the end result is paying off credit cards one at a time until all credit card debt eventually is paid off. The process is to choose one card to attack first while continuing to make minimum payments on all others. When that card is paid off, the cardholder takes what s/he has been paying on it, and applies that plus the minimum on the second card to be paid off.
There are two approaches to formulating the strategy by which the cardholder selects which card to pay off first.
1. Begin with the card that has the lowest balance, then move to the card with next lowest outstanding balance. This gives a psychological boost because the cardholder arrives at paid-off status more quickly.
2. Start with the card that carries the highest interest rate, then pay others in descending order of interest rate percentage. This approach allows the cardholder to pay off the most costly cards first, likely saving more in interest than when beginning with the cards with the lowest balances.
By the time people have paid off the last credit card, most are well out of the habit of whipping out the plastic to make unnecessary purchases. It is important to build a cash reserve emergency fund for things that happen, such as unexpected car repairs or health expenses. Especially as CNBC shared that about 66 million Americans do not have any emergency fund. Credit cards can be helpful or even essential in such circumstances, particularly before the cardholder has been able to build a sufficient cash reserve. Some people have found it helpful to freeze their credit cards in containers of water in their home freezers. Having them available but inconvenient to retrieve can help to break the habit of using credit cards for nonessential purchases.
Consolidating debt could be the answer but only after breaking bad habits first. Many people have taken consolidation loans, then put themselves right back in the same situation with credit cards. Consolidation loans can be helpful, but they must be used responsibly. A better option is to get the benefits of consolidation, especially a lower monthly payment, without taking out a new loan. We can help you make the right choice for you.