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Debt Management

Concentrate On One Debt At A Time

Whether you have few or many credit card debts, list them in the order of lowest balance to highest balance. When planning your debt pay-off strategy, you can approach it one of two ways.  One way suggests that if you have five credit cards for example, pay the minimum payment due each month on the four accounts with the highest balances (regardless of the interest rate) and pay as much as you can (more than the minimum payment, that is) on the account with the lowest balance.  Credit card minimum payments range from 2% to 4% of the current balance. 

When the account with the lowest balance is paid off, the payment you had been making to that credit card can now be applied towards the card with the next lowest balance. Through this focused approach, you can basically eliminate one credit card balance at a time, and by focusing on the account with the lowest balance, pay off an account sooner than if you had continued to make just the minimum payment on all existing balances.   And, by focusing your efforts to pay off the account with the lowest balance, you will also enjoy the psychological payback of paying off an account more quickly than if you had started by focusing on the account with the highest balance.

Another strategy for paying off credit card debt suggests tackling the account balance with the highest interest rate first. The rationale for this approach says that you are paying off the most expensive debt first, which can save you money in the long run.  However, if the most expensive debt is also one of your larger balances, then you will have a longer time to wait to experience the same psychological “win” from paying off an account balance; a benefit that can go a long way in keeping someone motivated with their debt pay-off plan.