How to Pay Off Credit Cards

Did you know that there are 609.8 million credit cards held by U.S. Consumers? The average number of credit cards held by cardholders is 3.5. That’s a lot of credit cards! You would think since getting a credit card is so easy, and there are so many of them, there would be more information on the best ways to pay off credit card debt. Many people find themselves in debt and feeling out of control. Debt can feel like its swallowing you and you’ll never get out. Here is some advice to help you learn how to pay off credit cards.

What are my payment options? You have some options for how to pay off credit cards. You can either pay off the entire amount of the bill, in which case you’re account goes to zero and you don’t have to pay interest. You can pay off your card over time by paying the minimum payment, which is the lowest amount of money you pay back to the card company and then be charged interest on the remaining balance in the next month’s cycle. Or you can pay off any amount above your minimum payment, in which case you’ll pay interest on the remaining balance for next month’s cycle.

Two is better than one: Have you ever thought of making payments on your credit cards more than once a month? For some people this may seem impossible, but it’s not. You make your minimum payment every month, but what about spending the $25 dollars a month you spend on fast food on your credit card? Even an extra payment of a small amount of money will help you pay off your card faster, and in turn bring your minimum payments down. If you can afford it, make your standard payment twice a month and watch how fast you’re balance goes down.

Should I focus on interest rate or balance? This is a very common question when people consider how to pay off credit cards. Do you pay off your highest balance first, or should you pay off the card with the highest interest rate? It’s best to pay off the card with the highest interest rate. Why? It saves you money in the long run. If you have a balance that continues to collect interest, the balance will go up if you don’t pay it off. Every time you make a payment, the amount of money you’re spending on interest will decrease. That means the sooner you can pay off the high interest card, the more money will go back into your pocket. Elisabeth Leamy of ABC News  (http://abcnews.go.com/Business/pay-off-credit-card-debt-smarter-faster-ways/story?id=9891785#.TujLU2NNUqM)uses this example:

Interest owed by paying lowest balance first = $2,641
Interest owed by paying highest interest first = $2,332
SAVINGS = $309

Remember you’re not alone when asking yourself how to pay off credit cards.  Anything you can do will help. Don’t let your credit card balance intimidate you into doing nothing. Stay focused and follow these easy steps to get a handle on credit card debt.

If you’re struggling with credit card debt, learn more about how FCS can help.