Paying Down Credit Card Debt
Credit card debt is the ball and chain dragging down way too many Americans – and we’re still piling it on. New Federal Reserve figures show we’re on our way to adding $54 billion to our collective card debt in 2011.
The only way to start building a financial future is to clean away the problems of your financial past. Here are two popular methods to get to zero on your card balances.
The High-Interest Rate Method
1. Stop using your credit cards and pay the minimum monthly payment on each of them.
2. Start with your card that carries the highest interest rate, and pay as much extra as you can on it until that balance is eliminated.
3. Work your way down your cards – from highest to lowest rates – until you’re done with them all.
Experts say this provides the biggest savings as to pay off your debt.
The Snowball Method
1. List your cards from the smallest balance to the largest. Again, keep paying the minimum monthly payment on all of them.
2. Decide how much extra you can spend toward your credit balances – say, 5 or 10 percent of your income. This is often called the “Accelerator Margin.”
3. Pay your minimum monthly payment plus your Accelerator Margin on your lowest-balance card until it is paid off.
4. Now go to your card that had the second-smallest balance and pay: the monthly minimum, your Accelerator Margin, and the money you had paid on your first card’s minimum payment.
5. Do the same down the list, until you’re done.
Experts say the “snowball” effect of this method builds a psychological momentum that helps people stick with the plan.