In an earlier post, I outlined where to start paying off debt and considered the factors that are involved when looking at various credit card balances. For those of you who need a bit more help, let’s step back a little further.
It really starts before you leave home; you need a budget. Having your money allocated through a budget allows you to be more pro-active; you won’t spend the money unless it’s in the budget. It gives you a great feeling when you spend this way because you know you’ve allotted the money for it, as opposed to that sinking feeling of wondering how you’re going to pay for it.
But, it’s too late. You’ve already spent the money and you really don’t know how to create a plan. Here are four simple steps to start your journey:
Make a List of All of Your Debt
Corral all of your credit cards and list them out like a to-do list. When you see everything in one place, it’s easier to manage psychologically. While it might seem overwhelming at first, you know this is ALL you have to do.
The list should include the issuer’s name, your balance, and the current interest rate.
Call Your Credit Card Issuers
Credit card companies have a department whose sole mission is to retain their customers. They want your money; specifically, they want your interest, and they don’t want you paying anyone else.
So, call them and ask them for a lower interest rate. If that’s not possible, ask them to issue you another card with a lower rate and transfer your current balance on to that card. If they offer another card with a lower rate, beware of a balance transfer fee; it can be as high as five percent of the transferred balance, so it needs to figure into your calculations.
Sometimes you may not get an accommodating representative when you call. Don’t get frustrated and don’t get angry; this will not help your cause. Simply hang up (after thanking them for their time) and call later in the day or the next day. You may want to ask for a supervisor, as they tend to be more willing to negotiate.
Now, sort your list from highest interest rate to lowest interest rate. Remember to consider variable rate versus fixed rate. Since there’s uncertainty with variable rates, and they may be going up soon, you might want to pay these cards off first.
Some like to start with the lowest balance as opposed to the highest rate, as they feel a psychological lift and substantial satisfaction with paying off a balance. Whether you choose to start with the highest interest rate or the lowest balance, you have to pick the method that you know you can stick with, and only YOU know that.
While making the minimum payments on the other cards, direct all your excess cash to the card you choose to pay off first.
This is where the fun begins. Once you’ve paid off the first credit card balance, apply the amount you’ve been paying on it to the payment on the next card on your list. You’ll find that the second card on your list will get paid off really fast. Then, apply that larger payment from the second card (the first card’s payment and the second card’s minimum) to the minimum you’re paying on the third card.
Now you get the idea.
Once you’ve begun to pay off your credit cards, it’s time to graduate to a budget. That way you won’t be spending money you don’t have and you won’t have to pay all that insidious interest.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.