• Lower your monthly payments
  • Reduce stress and live your life
  • Avoid personal bankruptcy court

Pay Off Your Credit Cards with 3 Simple Steps

Paying off any amount of credit card debt can often seem like a daunting and intimidating process. However, with just a bit of time, attention to detail and patience, paying off your credit cards in 3 simple steps is entirely possible. To start, follow these three simple guidelines to help you to save money and ensure a favorable credit score:

  1. Identify cards with the highest rate
  2. Focus on cards with the lowest balance
  3. Pay off  cards as quickly as possible

It is important to point out that paying off credit card debt is going to be different for every individual. Especially if you have a limited amount of financial capital, paying off debt is not always as “simple” as you would like it to be. Because the process of paying off debt might differ based on how much debt you have and how much debt you can realistically pay off, below are three tips to help make the process as pain-free as possible.

Pay Off Your Credit Cards

Identify Cards with the Highest Rate

Every credit card comes with an interest rate and the interest you pay varies based on the financial institution issuing you a line of credit. An interest rate is the percentage a financial institution charges you on the amount of money they loan you. You can usually find your interest rate on your monthly credit card statement. The interest rate will typically be labeled as an APR, or annual percentage rate.

The higher the APR, the more money you get charged in the long run. For example, if you take a year to pay off a $1,000 purchase on a credit card with a 25% interest rate, you can end up paying over a $100 in interest (depending on how much you pay for your monthly payments). With the help of an APR calculator, you can easily determine how much you should pay per month in order to pay the least amount of interest.

If you wish to pay off your credit cards with the highest rates, it is always a good idea to pay more than the monthly minimum. Oftentimes, the monthly minimum will only cover accrued interest, meaning you are only paying off interest rather than your debt. Paying more than the monthly minimum means you can pay off your credit cards by lowering your credit owed.

Focus on Cards with the Lowest Balance

Regardless of how much debt you owe, it is always ideal to first pay off credit cards that have the smallest amount of accrued debt. You will want to focus on cards with the lowest balance for two reasons:

  • Paying off lower balances is easier than paying off higher balances. Instead of keeping up with payments over 4-5 years, you might be able to pay off your credit cards in 1-2 years. Having a lot of credit cards open with small debt might reflect poorly on your credit report.
  • Paying off lower balances is more efficient than paying off higher balances. Since you will pay off your credit cards in a shorter amount of time, you will be less likely to continue adding credit debt. Studies show that completely paying off debt helps boost your financial confidence. By eradicating certain elements of debt, you are more likely to continue paying off other types of debt.

When you focus on cards with the lowest balance, you’re not ignoring cards with higher balances. Basically, your primary intent is paying off more money to cards with smaller balances and less money to cards with higher balances. For cards with higher balances, you might only be paying the monthly minimum, which is okay. Once you’ve completely paid off cards with smaller balances, you can continue to pay off your credit cards with higher balances.

Pay off Cards as Quickly as Possible 

Sometimes it is completely or nearly impossible to focus on paying off cards with smaller balances with higher rates. For some people, it might seem more effective to pay off all cards at the same pace. Though it really depends on your personal financial situation, regardless of what method you use to pay off your credit cards, the best method is to pay off your credit cards as quickly as possible.

The easiest way to find out which method of paying off debt is best for you is by making a spreadsheet. In your spreadsheet, include the total balance, interest rate, and monthly minimum payment, and monthly payment due date.

Credit Card Total Balance Interest Rate Payment Minimum Payment Due Date
Credit Card Name $XXXX.XX XX.XX% $XX.XX MM/DD

Figure 1: Credit Card Spreadsheet

Organizing your debt in a manner like the spreadsheet shown above can help you identify which credit card needs to be completely paid off in the shortest amount of time, and which cards should be paid off to avoid future debt problems.