A Fresh Approach to paying down Credit Card Debt
When most people come to the realization that they are in serious credit card debt, the first, and natural, instinct is to panic. They want to pay down that debt instantly so the problem is solved as quickly as possible. While the credit card companies appreciate this thought process, it may not be the right approach for you. There are three logical ways you can get out of credit card debt and you should seriously consider how all three fit your own personal debt situation before you commit to one or the other.
Regardless of which approach you take, you need to make a budget that clearly illustrates your money and debt flow. Once you’ve got that down and you see how much of your monthly income can be put towards paying down your credit card debt, you can choose one of three options:
The first approach is called the Domino Theory. Most people who are in credit card debt have several cards. Usually one or two major cards like a Visa or a MasterCard and then one or two smaller cards that have a limited credit line that might be saved for emergencies. Added to that, people often have store credit cards and even gas cards that have limited usage. The domino theory suggests that you take the card with the lowest balance and start putting every spare dime that you have every month towards that one card. In a matter of months, you’ll have that card paid off and the money that you were sending to it every month will be cleared up and available to send to the next card. Choose the card that is then the lowest and do the same thing. This is one of the times when paying the minimum on the rest of your cards isn’t a bad thing because it is part of a plan to get yourself out of credit card debt. By the time you are down to one card, you’ll have all of your others paid off and you’ll have all of that income available to put towards it.
The second method is essentially the opposite of the domino theory. Start with your largest card, or at least the card that has the worst terms, the highest annual fees and the card you want to get rid of fastest, and use the same methods. Pay the minimums on your other cards, tighten your budget to free up as much cash per month as possible and put every penny you have towards that card. Once these cards begin to get paid off, you’ll have more and more funds open up to pay down the rest of your cards.
The third approach is an insiders take on paying down your credit card debt. Get a copy of your credit reports and make sure there aren’t any misplaced charges. If your credit report is in order, target one card and start zapping it with the biggest payments you can. Ideally, you want to get under 50 percent of your total credit used up. Once you do, your credit rating will jump and you might start to get credit card offers for consolidation. Once you find a card with a reasonable post-intro rate, you can consolidate your various cards to one and paying down your debt will be that much easier.