MoneyRates.com 2011 resolution #11: Re-prioritize your credit card debt
November 06, 2011
If you are carrying balances on multiple credit cards, you can save money by prioritizing which balances you pay off first. However, that priority order should not be set in stone. Credit card rates change frequently, so you need to reset your payment priorities regularly. That's why the MoneyRates.com monthly resolution for November is to re-prioritize your credit card debt.
Here are four ways to reduce credit card debt more quickly:
- Target the cards with the highest rates for maximum payments. If you have balances outstanding on multiple cards, pay only the minimum amount on the cards with the lowest rates, so you put as much as possible towards paying off the cards with the highest rates.
- Only carry the lowest-rate card with you. Don't leave home without it? If it's one of your high-rate cards, you're better off leaving it at home.
- Starve your savings accounts, feed your credit card bills. Current interest rates on savings accounts are near zero, while credit card rates are in the double digits. The spread between the two means you lose if you have both a savings account and a credit card balance. So, while leaving enough to cover emergencies, it makes sense to divert money out of savings accounts and toward paying off credit cards.
- Make sure the net direction of your credit card balances is downward. While you are paying high-interest cards off first and concentrating new charges on your lowest-rate cards, make sure the net total of this activity is to pay off more than you are charging. Otherwise, you'll still be headed in the wrong direction.
Since 2008, Americans as a whole have been able to reduce their total amount of outstanding credit card debt. Are you part of this trend? If not, remember that the first step towards eliminating debt is to reverse the cycle by paying off more debt than you take on. The second step is to find ways, such as those listed above, to pay off that debt promptly until it's gone.
