Best way to pay off credit card debt
I am often asked this question, what is the best way to pay off credit card debt. My answer has always been - give me some details. Like how many credit cards you want to pay off, what are the balances at what interest rate and what are the minimum payments. And yes, how much money do you make and what all your other monthly expenses are? Because instead of paying off credit card debt, you may be able to file Chapter 7 bankruptcy for your best, as long as you qualify under revised bankruptcy law. So you see, there is no straight, out of the bag answer. Even when everything pretty much seems clear cut, there are more than one approach.
Most credit card debt experts advocate paying it off in one pretty straight forward way, called debt relief pyramid. The idea is that you start from the top which in debt case is the smallest debt. You do something like this:
First, write your debt balances in ascending order - from the smallest to the largest.
Second, pay the minimum payment on all debts except the one with the smallest balance.
Third, pay every extra dollar towards the debt with the smallest balance.
Fourth, once this smallest balance gets paid off to the big, round zero, repeat this procedure with the next smallest debt and so on.
By following this way, you are paying off the smallest balances and doing it much faster than the larger ones, which in turn, hopefully makes you feel good and keeps you going, I mean paying. Now, is that the best way to pay off any credit card debt? Not really. It works for those debtors who want to see quick debt reduction. And if you have few credit cards and one with the largest balance also has the highest interest rate, paying off the smallest credit card debt is often the only way for many psychologically unstable debtors out there, no offense intended and none, I truly hope taken. It is all about feeling good, which you should as long as you see some results. You, however, end up paying much more interest than the reverse approach which I explain below.
This second approach, I like to call it debt tree, since you start at the roots and go for the kill. Of your debt only. You start paying in descending order - from the largest balance down. This is the kind of debt relief that is not easy for many, precisely because you savagely attack the largest balance, no matter what the interest rate it carries. Let me take it back - the higher the interest the more sustainable and furious attack must be. In my opinion, this is the best way when it comes to paying off debt, large or small, high interest or low. These days all cards charge pretty much the same interest, especially when you are in financial trouble - high. Of course, it is always wise to negotiate credit card debt before paying - you owe it to yourself, at the very least, to try before you decide on what is really the best way to pay off your credit card. Also see paying off debt fast - how to pay off credit card debt quickly.
Finally, two useful links from bankrate.com:
what will it take to pay off my credit card?
the true cost of paying the minimum
Sat Jul 25, 2009 12:07AM | Copyright: www.bad-credit-advisor.com | More in Credit Card Debt | Comments (0)
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