Paying Off Credit Card Debt
March 14th, 2008
Carrying balances on a number of credit cards simultaneously creates an illusion of a manageable situation. However, by taking a step back and looking at the big picture one will soon realize that the total amount owed to the banks is much greater than each individual account balance. Adding up all the balances as one total will be a disturbing moment for many of us. Does it seem familiar to you? If so, let’s see what a person should you if he or she happened to get trapped by a multiple credit card debt.
Which Card to Pay off First
People have a tendency of paying off a credit card with the least balance first. It gives them a feeling of accomplishment. Although it is a nice feeling to empty one of your “debt buckets”, the main goal for one carrying such a burden, first of all, should be saving money and not just marking closed accounts. Not having adequate money source to satisfy one’s spending habits has initially brought him to these unpleasant circumstances. That is why one should fight the cause to solve the problems, which can be interpreted as – stop wasting money.
A person will save money by paying off the credit card with the highest annual interest rate first. If there is an option of transferring (preferably for free) the balance from cards with higher APR to the card with low APR, one should make such transfers and proceed with paying off the remaining balances of the “expensive” accounts. Of course one should not forget making at least minimum payments to all the other accounts.
When to Transfer Balances
If the amount owed is great and one will not be able to pay it off within a year or sooner, in many cases it will help to transfer the balance to another credit card with a lower or 0% APR credit card. For such a transfer to be profitable one should compare savings and the cost associated with this process. As a rule the transfer fee will be around 3% of the amount transferred. If one saves about twice as much as it costs to make a transfer (or at least 6% a year) he may consider doing so to save money.
