Many people have credit card debt; it is very easy to swipe the plastic and forget about it. Eventually the payments become overwhelming – how do you manage all of those cards? It’s much easier than you think, and there are a few methods to use to do it.
This article won’t tell you where to get the money you need to pay off your cards – there are plenty of other how-to article on that subject already – but it will tell you how you can manage your credit card debt so that YOU control it and not the other way around.
The first method is the simplest: pay your balance every month! However, it is very common (though not recommended) for people to carry a balance month to month. If you fall under this category, then read on. If not, congratulations! You’re already managing your credit cards properly.
The second method will take a little time to clear your card(s), but it will also be your best bet. Let’s assume that you’re paying off three cards; Card A has an interest rate of 18.5%, Card B has an interest rate of 19%, and Card C has a much lower interest rate than the others – 15%. For the sake of this article, assume each card has the same balance.
Pay off the highest interest rate first – Card B – and go down the list. The list should read Card B (19%), Card A (18.5%), and Card C (15%). Do this because if you will end up paying the least amount of interest in the long run as you pay off the higher interest cards faster. After you’ve done that, you need to figure out two things:
1) Minimum Monthly Payment
2) How much you can put toward your overall credit card debt
For this example, since all balances are the same, the minimum monthly payment is the same as well – let’s use $25. Your budget for clearing off your cards is a modest $200. After the $75 in minimum payments, you have an extra $125 to put toward the cards. Do not spread this evenly across all three cards! Instead, apply that $125 to Card B. You are now paying Card B $150 every month, and the other two cards $25.
In order to save further on interest – and pay your card off faster – send the minimum payment ($25) in time for the card’s due date. At another point in the month, you can either send the remaining $125 at a later date or split that amount up further which will decrease your average daily balance.
Once Card B is paid off, it’s time to move on to Card A. On top of the minimum payment of $25, you are now going to add the minimum payment from Card B and the extra $125. You are now paying Card A $175. Continue this until you are paying Card C the full $200.
This method is known as the “snowball” method, and is a variation of the method made popular by Dave Ramsey.
His method is to order your debts from smallest balance to highest, as you will have a feeling of relief and empowerment when you knock out a debt. The actions are the same, you just need to worry about the debt amount rather than the interest rate.
Of course, it never hurts to add additional payments on top of your set budget toward your cards. Anything you pay toward the card will get you out of credit card debt a lot faster. The best part is that while you set up a plan like this, you will start to feel more in control of your money – and you will notice a change in how you use your money.