Do you have credit cards that you owe money on? Perhaps there’s a store card or two in there as well. Well this article is about the quickest way to pay off your credit card and store card debt.
So how do you pay off your credit card debt in the quickest way possible? It’s really quite simple.
The very first task you need to do is to make a list of all your debts. So make a list of who you owe the money to, how much you owe, the annual interest rate you’re being charged and what the minimum monthly payment is.
Now you’ll need to find the annual interest rate information on your monthly credit and store card statements. These statements will also tell you how much the minimum monthly payment is.
Now that’s the amount that the contract with the credit card company says you have to pay every month. If you don’t, you could incur some extra charges, and it can really mess with your credit rating as well.
Now once you’ve got this list of your credit and store card debts you can add in things like personal loans as well if you want. Then have a look at that list and have a look at which debt is charging you the highest annual interest rate.
If it’s a store card it could be something like 30% a year. If it’s a credit card it could be 18% to 20% a year or even higher. If it’s a bank loan it could be anything between 3% and 15%, maybe even be a little higher.
Once you’ve worked out which of your debts is charging you the highest interest rate, put a #1 next to it. Go through your list and put a #2 next to the debt that’s charging at the second highest rate of interest, #3 next to the debt charging you the third highest rate of interest and so on.
Now lots of people who are trying to pay off their credit card debts can often afford to pay a little more than the minimum monthly payments. But what they tend to do is to split that money equally between all the different cards. That is not the quickest way to become debt-free.
The really important thing is that you should pay the minimum monthly payments and then whatever you have left over you should pay all to the card that’s charging you the highest rate of interest.
Now hopefully you will have some extra money in your budget that means you can pay more than the minimum monthly amount.
You don’t necessarily have to have a fortune but if you think you can’t afford to pay much more maybe have a look back through your bank statements or your budget and see if you can come up with any extra savings anywhere. If you can’t maybe you can bring in some extra income.
So whatever you can afford to pay, pay all of it to the card charging the highest rate of interest. And then when that bill is paid off, take the money you were paying to that card, so the minimum payment plus whatever you could afford to pay, and pay all of that to the card charging the second highest rate of interest.
When that one is paid off, pay all that money to the card charging the third highest rate of interest and so on until you’ve paid off all your debts.
And because you are paying your debts off in the order of interest rate, you’re paying off the most expensive first and the cheapest last, that means it’s the quickest way to pay off your credit and store card debt.
Here is an example as to why it’s such a bad idea only to pay the monthly minimum payment every month.
So let’s assume that you owe a $1,000 on your credit card and that it’s a typical card charging 18% interest. If you just make the monthly minimum payment, you’ll be paying $18 a month.
Now obviously as you pay that card off the monthly minimum payment will go down, but it will start off being $18, so we’ll stick with that.
If you only make that monthly minimum payment every month, guess how long it’ll take you to be debt-free? It’s going to take you around 18 years to pay off that credit card that $1,000 you owe on your card!
But if you could find some extra money, if you can find an extra $18a month, so instead of paying $18 a month you are now paying $36 a month you can be debt-free on that card in around 3 years. So you’ll have an extra 15 years of not owing any money on that credit card!