If you're like many people, you're probably juggling more than one credit card. In fact, the average consumer has 2.7 cards each, according to a January 2010 survey conducted by the Federal Reserve Bank of Boston. So, when it comes to paying off your debt, which card do you attack first? The card with the lowest balance? Or the one with the highest interest rate? It's certainly best if you can pay off your balance(s) all at once at the end of each month, but sometimes that's just not, shall we say, in the cards. Here are a few things to remember when planning your repayment strategy.
Minimize interest. In general, you want to pay off the card with the highest interest rate first. Pay the minimum payment due to your lower interest rate card(s) and then put the rest of your payment resources toward the card with the highest interest rate. This strategy will help minimize your interest expenditure.
Max it out. Your payment, that is. If your cards carry nearly the same interest rates, you should try to always pay more than the required minimum payment. Often the minimum payment due is barely more than the finance charges that month, which means consistently paying the minimum can lead you to carrying your balance for years and barely putting a dent in it.
Consider a merger. If one of your cards has a significantly lower interest rate, you might consider transferring your balance from your high interest card to the one with the lower rate. You will likely have to pay a transfer fee, but this will allow you to combine the funds you were going to use to pay each card, and put it all toward one card with a lower interest rate. Try this Credit Card Optimizer to help determine the best distribution of your debt.
Remember, the sooner you pay off your credit cards, the better. Check out this Credit Card Pay Off Calculator to help determine what it will take to pay off your balance, and what changes you can make to meet your repayment goals.
Visit www.feedthepig.org for more money-saving tips.
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