Two Logical Ways to Pay Down Credit Card Debt
There are several options to get rid of debt but before you can choose, there is another question that you have to tackle. What is the best way to select the accounts that you need to prioritize?
This does not mean you will stop paying for the other debts that you have. As long as you can pay for the minimum of all your credit cards, you are in good shape. However, to pay down your credit card debts, you have to increase payments on some of your credit cards. The challenge is in choosing the credit cards that will receive higher payments.
There are two logical ways in paying your credit cards. Both of them have their own pros and cons.
There is actually a third that involves debt consolidation. While it can work for some people, the principle of paying off a debt by taking on another debt seem like taking on a bigger problem. You are not really addressing the situation wherein you have to discipline yourself on how to handle your finances.
Anyway, here are the two other options that you have.
Pay off High Interest Debts First
The first logical way to pay your credit card is by paying for the high interest rate debts regardless of the balance. Money-wise, this is the best way to go. The high interest rates should be prioritized because that is how you will save your money. When you pay off a 19.99% credit card, you are effectively earning a 19.99% guaranteed return on your money.
By lowering the balance of the high interest debts, you lower the chances of having to pay for more interest – since the interest month on month is dependent on the balance of the previous. As you lower your balance, you also lower the amount that you have to pay for the interest. That makes sense for the logical and linear thinking people. In the financial world where linear thinking is at its peak, this is the preferred way to go.
Pay off Debts with the Smaller Balance First
However, another method that is gaining popularity involves paying the low balance debts first. This type of payment method makes sense psychologically.
The idea is to concentrate on the debts with the least balance so you can experience immediate success. As you go through one success after another, you get the encouragement and push needed to work on the next debt and the next and the next. It is believed that compared to the other method, this has the most success rate.
This method is preferred by people who are more creative and non-linear in their way of thinking. When you think about it, the small wins helps you tackle the bigger amounts as you move further into your debt paying endeavor.
How to Pay Off your Debts
Both debt payment methods are effective so your choice will depend on your personality and the way you think. The important thing is to commit to whatever method you have chosen. Also, if you feel like it is difficult to work on your debts alone, you can always hire the help of a debt professional.
Debt relief companies like National Debt Relief can provide this assistance and advice you on how you can best manage your debts. Give us a call or simply fill out the form you see on this page. We will be happy to assign a debt professional to help you get out of your financial troubles.
