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Two Ways to Tackle Debt

Savvy Solution: Two Ways to Tackle Debt

Like most things related to money, formulating a plan is the surest way to stick to your goals. Some debt slayers simply throw most of their money (after living expenses) at their debt to pay it off as quickly as possible, and hit the ground running without a clear path. Other debt-ridden dames focused on making a change need more focus to get motivated.

When multiple credit cards are involved, the question arises of where to begin. One school of personal finance thought recommends that the card with the smallest balance, regardless of the card's interest rate, be paid off first. The strategy assumes that once the first card's debt is paid down it creates a sense of momentum that charges you to move on to the next card, and so on. Discover a different method for tackling debt when you

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Many personal finance gurus back the strategy of paying off the card with the highest interest rate, no matter the balance, so that overall you'll end up throwing less money away on interest. While most money is dedicated to that card, minimum payments should be made on the other cards to avoid missing payments. Once the highest interest debt is paid off, move on to the card with the next highest rate.

So which way is better? It makes more sense financially to pay off the card with the highest interest rate first, but if paying off the card with the lowest balance is what it takes for you to get motivated than so be it. Choose a plan that works for you and stick with it!

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LadyAngel89 LadyAngel89 7 years
I say highest interest first. It can make a big difference. Especially when there's several percentage points between them. I don't think canceling cards is a good idea if you still have any debt it significantly ups your debt to credit ratio. Especially your oldest card, because it lowers your average credit history. All of which make big hits on your credit score. If you're serious about staying out of debt, don't carry your cards with you, or carry one with a low credit limit for emergencies (and no that little black dress is not an emergency).
hithatsmybike hithatsmybike 7 years
I transferred all my debt to a line of credit with an interest rate that is less than half of what was on the cards! Then I just put the cards away and don't use them. I only have 2 credit cards though, one of which is a department store card, and my debt isn't that big because each of them only have $2500 limits and I've never maxed them.
hithatsmybike hithatsmybike 7 years
I transferred all my debt to a line of credit with an interest rate that is less than half of what was on the cards! Then I just put the cards away and don't use them. I only have 2 credit cards though, one of which is a department store card, and my debt isn't that big because each of them only have $2500 limits and I've never maxed them.
sundrops sundrops 7 years
We started with the credit card with the least amount of debt on it and have paid off over $21,000 in a year. Given our yearly income is a little more than twice that, I would say starting with the littlest gave us the motivation we needed. Now we only have one card left - whoo hoo! There's power in being able to say that.
ilanac13 ilanac13 7 years
i think that there are so many ways that people can tackle it. for me - i've gone the route of paying off as much as i can on each card each month. i don't use them at all anymore - so for me, i'm slowly making a dent in what i owe. i've actually managed to pay off 2 cards - and i don't even have the replacements to those since i've cut them all up - and now i'm moving on to the 2 last cards that still have a balance. it sucks that they have the higher interest rates, but i figure that if i only have 2 - then i can pay off more each month. i think that i'm certainly making an impact on raising my credit score which is the most important thing!
ilanac13 ilanac13 7 years
i think that there are so many ways that people can tackle it. for me - i've gone the route of paying off as much as i can on each card each month. i don't use them at all anymore - so for me, i'm slowly making a dent in what i owe. i've actually managed to pay off 2 cards - and i don't even have the replacements to those since i've cut them all up - and now i'm moving on to the 2 last cards that still have a balance. it sucks that they have the higher interest rates, but i figure that if i only have 2 - then i can pay off more each month. i think that i'm certainly making an impact on raising my credit score which is the most important thing!
lawchick lawchick 7 years
the way my home lender explained it to me -- part of your credit score comes from the amount of available credit you have versus the amount of debt you have on those credit cards. I guess they want to know you stay well under your limit.
valancyjane valancyjane 7 years
I read somewhere that having too much available credit can be a red flag, too -- potential lenders get nervous that you might rack up a bunch of debt and then declare bankruptcy. Seems you can't win no matter what you do.
fauxtographic fauxtographic 7 years
it's also not a bad idea to call the CC companies and lower your limit once it's paid off, with multiple cards perhaps keep one at a higher limit and keep the others low (like $500) in order to keep the spending under control! i have a couple of cards and every few months they keep upping the limit - one is at nearly $20K, which is ludicrous. plus it just bothers me if my card gets stolen how insane it would be if someone went on a spending spree with that - depending on your plan you may not be on the hook for the entire amount, sometimes it's a flat fee like $50, but who wants to take that chance on how it could affect the credit score ?
fauxtographic fauxtographic 7 years
it's also not a bad idea to call the CC companies and lower your limit once it's paid off, with multiple cards perhaps keep one at a higher limit and keep the others low (like $500) in order to keep the spending under control! i have a couple of cards and every few months they keep upping the limit - one is at nearly $20K, which is ludicrous. plus it just bothers me if my card gets stolen how insane it would be if someone went on a spending spree with that - depending on your plan you may not be on the hook for the entire amount, sometimes it's a flat fee like $50, but who wants to take that chance on how it could affect the credit score ?
L7amiguita L7amiguita 7 years
I agree with meum and lawchick. If you are able to demonstrate self-control after you pay off your CC, you shouldn't cancel or close the accounts. It will look bad on your credit history. Just keep them in a place where you can't easily get to them.
meumitsuki meumitsuki 7 years
You should also never the close the oldest major CC you have because it has the longest history of your payment schedule, etc.
RosaDilia RosaDilia 7 years
Nowadays, you don't have much choice which one to pay off first when currently most of the cards have high interest rates. When I paid off most of my cards I just tackled the low balances first paying one a month off with a lump sum payment. I cancelled all of my department store cards because if i'm not mistaken, they don't contribute much to your credit like the major credit cards do.
TidalWave TidalWave 7 years
just cut up the cards! or throw them in the freezer. i also think that the highest-interest card should be paid off first, then add that payment to the next highest interest (snowball method).
TidalWave TidalWave 7 years
just cut up the cards! or throw them in the freezer.i also think that the highest-interest card should be paid off first, then add that payment to the next highest interest (snowball method).
lawchick lawchick 7 years
sunnynight, I agree and I cancelled my card after I paid it off. BUT it does have a (temporary) negative effect on your credit score to cancel a card, so don't do it right before you try to buy a house or something like that.
sunnynight sunnynight 7 years
Savvy, you should add that after they pay off all those cards, they should CANCEL MOST OF THEM. Otherwise they're likely to fall into debt again. I really don't see the point in anyone having more than one credit card.
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