What is the best way to pay off credit cards?

There are actually varied opinions as to what is the best way to pay off your credit card. Some experts suggest that you start with the credit card with the highest interest rates and pay those off first while others suggest that you start with those with the lowest balance and pay those off first. Either of these options are an excellent way to pay off your credit cards.

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Being in debt can be both a good and bad thing. A small amount of debt helps to improve your credit especially if you are paying your payments on time every single month. However, a large amount of debt can be harmful in a number of ways. Being deeply in debt can negatively affect your credit and, of course, make it impossible for you to make your payments should your financial situation change.

Why should I start with the credit cards with the highest interest rates?

Simply put, high interest rates equal more costs over time. You can go online and use a credit card payment calculator using your credit card balance, your interest rate, and your minimum monthly payment to determine how long it would take you to pay off your credit card. You may be amazed at how much you are paying in interest on your higher interest rate credit cards.

If you’re receiving a paper bill for your credit card statements, included on your statement in accordance with the new Federal Reserve credit card rules, your credit card company is required to include how long it will take you to pay off your debt based on your current balance and minimum monthly payments. You should pay attention to this information so that you have a real idea of how much you were paying for your credit card purchases.

If you have high interest rate credit cards, you need to pay them off as quickly as possible. If you’ve established good credit and you have high interest rate credit cards from previous bad credit years, consider calling the credit card company and negotiating your credit card rate. If you have a good history with them, they may be willing to lower your rate, making your payments are reasonable. In lieu of that, paying off your debt as quickly as possible is a surefire way to help save you money.

Why should I consider paying off my lowest balance credit cards first?

Paying off your credit card with the lowest balance gives you a major psychological boost. If you’re trying to pay off your debt, imagine how good you will feel after your first success. By choosing the credit card with the lowest balances first, success will come sooner rather than later.

Most consumer credit counseling services offer of debt relief plan that begins with you paying off your lowest balances first. On their plans, when the lowest balance credit card is paid off they take the money from that balance and apply it to your next lowest balance credit card. This creates the snowball effect.

What this means, is that every credit card after the one with the lowest balance will have more money applied to it as time goes on the payments become larger and larger for each credit card following the one prior to it helping to quickly reduce the total balance.

My debt is too much for me, should I use a consumer credit counseling service?

According to the Federal Trade Commission, consumer credit counseling services is the highest recommended option for people looking to get out of debt. Consumer credit counseling services are nonprofit organizations and although there will be fees; the fees go to sustain the program. For-profit organizations charge more money because they are looking to make a profit off your debt. There is no additional benefit to using a for-profit program versus a non-for profit program.

When you choose to use a consumer credit counseling service, you are required to sign a contract that you will get rid of all of your current credit cards, close accounts, and you will not incur any new debt. The exception might be the need to incur debt for a car purchase if your current vehicle becomes unusable.

Consumer credit counseling services are very serious about this contract. They will monitor your credit while you’re on the program and if you open a new debt account, they will kick you out of the program. That is a major difference between a non-profit and a for profit credit relief program.

If you choose to use one of these programs to get out of debt, you need to be careful of scams. Use only reputable counseling services to help you get out of debt.

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