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2 Ways to Pay Off Your Credit Card Forever

By Edited May 1, 2014 0 2

 

How to pay off Credit Card Debt

"Those who understand interest earn it; those who don't, pay it." - Unknown

If you’re reading this article, it’s because you, like millions of Americans, have credit card debt that needs to be paid off. Know that you’re not alone, approximately 176 million Americans carry credit cards,  and the average credit card debt per household is $14,750. The average annual percentage rate to borrow that money is about 15% meaning the average credit card-carrying family is paying over $2000 per year in interest!

This is not a sustainable cycle. Millions of Americans file for bankruptcy every year, and the cause of that bankruptcy is debt, such as medical bills or credit card bills. So how does one begin to pay off their debt once they see the folly of the cycle they’ve created?

The first and most important step is to generate excess cash per month. This is done through budgeting, cutting back on expenses, getting an extra job, or selling things that you don’t use anymore. There are many good ways to create excess cash flow, pick the one that will work best for you.

Second of all, you must establish an emergency cash reserve - you don’t want to start paying off your debt, need money, and then have to use your credit card again! Set up a cash reserve that will cover most emergencies, from $500 to $5000 depending on your needs. ($1000 is the  most common)

Once you have your emergency reserve set up, it’s time to start mailing checks to the credit card companies!

There are two methods you can use.

Highest Rates First:
 
If you have multiple credit cards that have varying interest rates, simply make a list of the balance, card name, and interest rate charged, and start paying off the card with the highest rate first! Make minimum payments on everything but the card with the highest rate, and spend all of your discretionary income on paying off the card with the highest balance.

This is an example of how to create a list using the ‘highest rates first’ technique.
Credit Card Name Dollar Amount Owed Annual Interest Rate 
Visa $4750 29.9%
American Express $9225 17.5%
Mastercard $1200 12%

After you’ve finished paying off the visa, move on to the American Express, and so on.

Debt Snowball:

Make a list of your debts, but this time start with the lowest balance first.

Credit Card Name Dollar Amount Owed Annual Interest Rate 
Mastercard $1200 12%
Visa $4750 29.9%
American Express $9225 17.5%

After paying off the smallest debt, start making payments until the smallest balance is paid off. Once you’ve eliminated your smallest credit card, move on to the next smallest debt, including the payment for the recently paid off card. This method provides the satisfaction of making seemingly big progress early on, even if it takes a bit longer.

The most important thing is to develop a plan and stick with it! Put your goals and plans IN WRITING, and tell your friends and family about your strategy of paying off your debt. Being held accountable by others will help you accomplish your goals.

Don’t forget to celebrate your small victories along the way! After a card is paid off, celebrate with a dinner at an inexpensive restaurant, a bottle of champagne, or even a day off with your family. Celebrating victories will make them more desirable, and possibly provide more motivation to continue your debt pay off plan!

Sooner or later this debt will have to be paid off, so start today!

 

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Comments

Oct 9, 2011 6:31pm
webspider20
I used the debt snowball about 6 months ago and I am almost debt free. I started with over $15,000 in debt and it is almost all paid off.
Oct 9, 2011 6:31pm
webspider20
I used the debt snowball about 6 months ago and I am almost debt free. I started with over $15,000 in debt and it is almost all paid off.
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