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If you have/had CC debt, which method is/was the best to become debt free?

posty

By posty,
in The Tailgate

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posty Huddler

posty

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http://blog.quizzle.com/2010/01/getting-ou...-pay-off-first/

 

Focus: Highest Interest Rate

 

The first approach is to concentrate first on the credit card with the highest interest rate. If you’re not sure what your interest rates are, check your credit card statements or make a quick call to your credit card companies.

 

By focusing on the balance with the highest interest rate first, you’ll save the most money in interest in the long run. Make a list of your credit card debts in order of highest interest rate to lowest interest rate. When you’ve paid off the balance with the highest rate, check it off the list and move on to balance with the next highest rate.

 

While you’re focusing on a single card, make sure you’re also paying the minimum payments on your other credit cards. “Payment history,” or how reliably you pay your debt on time each month, has the largest impact on your credit score. Even a single late payment can take a toll on your score.

 

Not sure what your credit score is? You can take a peek at your credit score for free – plus your credit report – at Quizzle.com.

 

Concentrating on the highest interest rate first, then moving down the ladder, is the soundest strategy financially, but often takes a lot of patience. If you think you need a little extra motivation and the benefit of small wins along the way, the next method might be better for you.

 

Focus: Lowest Balance

 

The second approach is to focus on the credit card with the lowest balance first. If you’re a fan of financial author Dave Ramsey, this method may sound familiar; he calls it the “Debt Snowball Plan.”

 

By concentrating on the debt with the lowest balance, you’ll get to experience small successes more quickly with each credit card that you pay off. This method will help you to build momentum – like a snowball rolling down a hill – and for many people, helps keep the motivation to stick with it.

 

Similar to the first strategy, you’ll want to make a list of each of your credit card debts in order of smallest balance to largest balance. When you pay off the card with the smallest balance first, check it off the list and apply your available funds to the next smallest balance. Again, don’t forget to also pay the minimum payments each month on your other credit cards.

 

The Debt Snowball is for those who have a hard time mustering and maintaining the motivation to pay down their debt. While you’ll likely pay more money in interest over the long-term with this approach, the psychological boost you’ll gain may be just what you need to succeed in becoming completely debt-free.

 

Ultimately, the method you choose to pay off your debt is less important than getting started… right now. If you have a lot of debt, it will take time, patience and continued commitment to become completely debt-free, but the freedom you’ll experience by doing so is entirely worth it. Take it from me, two years debt-free and loving it.

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rajncajn Huddler Hall Of Fame

rajncajn

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We get mailers all the time offering interest free for 12 months if you transfer a balance to thier card. You could do that and then get it paid off within the year. Then again, those could be a scam as I've never read the fine print.

A lot of times these offers start you off with a card limit too small to fully pay off your current one. Then you end up with two notes which lowers your monthly income and your ability to pay more than the minimum. Also, if you're not able to pay the card off within the 12 months your interest compounds. It's best to just focus on paying off one item at a time. If you have the free monthly income then hit the one with the highest interest hard. Most people in that kind of debt don't have that luxury though & the snowball method (paying the smallest debt first) works best.

Edited by rajncajn
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muck Huddler All-Pro

muck

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For those who are excel proficient, it's possible to set up multiple tabs with different scenarios and see which one gets you debt free faster -- I could see a scenario where the debt snowball gets you out of debt faster than paying on the higher rate debt first due to the size of the minimum payments required.

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Perchoutofwater Huddler All-Pro

Perchoutofwater

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Only really serious argument my wife and I have ever had was over her charging up a whole bunch of crap I didn't know about over a long period of time. I went ballistic. The worst part of it, is I had the money to pay it off in an account she has no access to, so we basically paid all those interest fees for no good reason. Since then, I check to make sure they are all payed off each month. Damn that was two years ago and it still gets me pissed off just thinking about it.

Edited by Perchoutofwater
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Avernus Huddler All-Pro

Avernus

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Paying off the higher interest is the smarter thing to do financially.

 

this is the method I've been following...

 

I've been paying off hugh chunks on the one with the highest rate and then paying a little more than the minimum on the others....this way I still work some off the other cards, but take off massive chunks from the card with the highest interest rate...

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cliaz Huddler All-Pro

cliaz

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For those who are excel proficient, it's possible to set up multiple tabs with different scenarios and see which one gets you debt free faster -- I could see a scenario where the debt snowball gets you out of debt faster than paying on the higher rate debt first due to the size of the minimum payments required.

 

All you want and more

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I Like Soup Huddler

I Like Soup

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Pfftt...I had to figure out my own spreadsheet for running with average pace, etc. Pain in the ass. :wacko:

 

Oh, and I've got an amortization spreadsheet I've used for years. While technically/financially the best way to go about lowering debt is going after the highest interest rate cards, I think you'll find the savings are extremely small. I subscribe to the Snowball Effect, humans are wacko animals and it is all about the psychology of motivating an individual!

 

Of course, a big thumbs up to anyone going the "hard" route and paying off debt the old fashion way and not going for bankruptcy.

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