Now that you have decided to eliminate your credit card debt, it can be a very important decision of which credit card to you put most of you money towards. By choosing the strategy that works best for you, you can save yourself hundreds of dollars and keep yourself motivated as well.
Pay Off Your Credit Cards In The Right Order
Now that you have lowered your credit card interest rates, it is time to figure out which order you want to pay your credit cards down in. Even with the lower interest rates, the order can still make a big difference in how quickly you are able to eliminate your credit card debt. There are two strategies that are recommended for paying off your credit cards. The first (and most highly recommended) is to start with the credit card that has the highest interest rate and pay it off first. However, this might also be the credit card that has a large amount of money on it, so it can be intimidating. The other option is to pay off the credit card with a small balance so that you feel like you are making progress - and it keeps you going.
Strategy #1: Pay Off Your Highest Interest Rate Card First
This is the recommended strategy, since it will save you the most money. In order to pay off your highest interest rate card first, here is what you need to do.
- Put your credit cards in order from highest interest rate to lowest interest rate.
- Write down the required minimum payment amount beside each card (use the most recent month, since this amount changes a little bit each month as your balance changes).
- Figure out how much you can afford to put towards credit card payments each month.
- Pay the minimum amount on all of your credit cards EXCEPT your highest interest rate card.
- Put the remaining amount towards your highest rate credit card.
Strategy #2: Pay Off the Lowest Balance Card First
While this is not the optimal strategy for saving you money, it is sometimes a requirement for keeping you motivated towards eliminating your credit card debt. While we all know that paying off the card with the highest interest rate first will ensure that we pay less over the long run, sometimes we need to feel the satisfaction of paying off one credit card entirely. This strategy will get you that satisfaction sooner. Once you feel like you can keep the momentum and continue to pay off your credit cards, it is recommended to switch back to strategy #1 to save yourself the most amount of money in the long term as you pay off your balances.
Whichever card you choose to pay off first, don't forget to keep making your minimum payments on all of your other credit cards at the same time. If you miss a minimum payment, it will probably cause your interest rate to soar and will also impact your credit score.