Picking the right approach to paying down credit debt
Many credit card users make the mistake of letting credit card debt escalate and not having a plan in place to pay down the debt. Without a plan and only making minimum payments on accounts debt can quickly accumulate to an out of control point. There are several different approaches to tackling credit card debt, and consumers should carefully consider which is best for them.
One of the most popular and advised approaches is to pay off the credit account that carries the highest interest rate. With this decision the most expensive debt is the debt paid off first so that as time goes on consumers make smaller and smaller payments as they work out of debt.
This approach may be overwhelming for those with higher amounts of debt and feel that they can’t make payments on high interest cards. Call the card issuer to ask if they will work with you to lower interest rates, accept a smaller minimum payment or allow a longer grace period.
An alternative approach is to pay off accounts with the lowest balance first. This approach offers fast results to a credit score. Credit scores are generally higher for those with fewer credit accounts so paying off one account can be a big boost.
Consumers may choose to begin paying off the account that currently has the highest balance. This again can have a big effect on credit scores. A part of the credit score is the debt to available credit ratio. By paying off cards with high balances or those that are closest to the card maximum credit scores will improve.
A final option is to pay of the card that is used the most. This isn’t necessarily the card with the highest balance but the card that offers the best rewards and is used for the day-to-day purchases. By keeping this account low it keeps the account available for emergencies.
Choosing an approach to credit card debt is a step that many people never take, but is an important money management step that can make debt less overwhelming and help consumers stay financially healthy.
