The holidays have passed, the New Year is well underway, and you're looking for new ways to budget better and consolidate debt. If you’re like most people, your credit card balance is probably a lot higher than you would like it to be right about now. Coming out of the highest spending season can leave you panicked about how to pay down credit card debt or wondering how to even begin paying off all of those bills. While there is no perfect solution, there are several ways to help accelerate paying down balances and set priorities that give you real beneifts.
Focus on the card with the highest interest rate
The national average interest rate on a credit card is 15.2 percent1. If you currently have a card with a higher rate, a great strategy is to focus on paying down that balance first. Even if this card is not carrying the largest balance of all your cards, it can cost you the most in interest payments because of its higher rate. By only making the minimum payment for this card every month, the interest can add up a lot quicker than you would think.
Let’s say you have a $1,000 balance on your highest rate credit card. Most minimum payments are four or five percent of the total balance. Only making $40 monthly payments on that $1,000 means you’ll finally pay it off in 65 months and end up paying $368 in interest!
Avoid late payments and fees
Additionally, late fees can accrue faster than you can make money to pay it off. Do not begin that vicious cycle of fee payments. Set reminders for your payments and know when everything is due so you can avoid fees.
Aim for the card with the smallest balance
Next, focus on the card with the smallest balance. While this might be the card you are tempted to pay off first, a better strategy is to make it your second priority. Getting that smaller balance paid off is great for anyone who like to see progress. The satisfaction of seeing a card with a zero balance is a motivator to continue with your program and consistently work toward paying down debt. Paying down your smallest balance will give you a sense of accomplishment, while also giving you one less monthly bill to worry about.
When crafting a debt repayment plan, it is important to understand your options and your eligibility. Your credit score will play a big role in whether or not you’ll qualify for products like balance transfers or competitive personal loan offers. Some credit card companies and financial institutions do special promotions. However, special offers and consolidation loans will be based on your score. Keep your score healthy by making payments on time and minimizing how much of your available credit lines you're using. Consolidating debt can result in an overall lower interest rate on your balance and cut down multiple payments into one. This is a great option if you have larger balances or a number of different credit cards.
Do whatever gives you peace of mind
Ultimately, it is your choice on how you want to pay down your credit cards. While these suggestions can help you better understand the benefits to different payment strategies, consistently paying down your balances and restricting how much additional debt you take on will benefit you in the long run. If paying equal, smaller amounts on all your cards makes you feel better, do it! Just make sure you're always making minimum payments and getting them in on time. Find the best method that gives you peace of mind and also works toward achieving your goals. Remember, even if you take a step backwards one month, paying off debt is more of a marathon than a sprint and every little bit of progress helps!
If you have questions regarding low interest credit card options, consolidating debt with a personal loan or would like more information, call 773-565-2000. FFCU is here to serve as your financial advisor.