The two most popular methods of aim of and reducing your credit card debt are either paying off the credit card with the highest interest rate first or paying off the credit card with the lowest balance.
Both these methods have their advantages and disadvantages. Read more to learn about these two methods of reducing your credit card debt and which one suits you better.
Paying off your overdue credit card
Debt and balance works best if you employ an organized approach. Making minimum payments on your credit card and allocating any extra money towards up all your credit cards at the same time can have a miniscule effect in reducing the amount of credit card debt. You should not attempt to tackle the credit card debt on all your cards at the same time. There are two main approaches that you can use to pay off your credit card bill that work the best.
Method #1 — Paying off the Credit Card with the Highest Interest Rate
This method of paying off your credit card requires you to pay off the balance on the credit card with the highest interest rate first. This is the credit card that you tackle most aggressively. You continue payments on all your credit cards by paying the minimum amount due. Now card should have been missed out on or the payments made late.
When the credit card with the highest interest rate has been completely paid off use which the amount that you are paying on that card to the next card with the next highest interest rate. So what you will pay on the second card is the amount that you are paying on the first credit card as well as the minimum payments that you were already making on the second credit card. The amount of money that you pay every month will remain the same even though you complete paying on credit cards one by one. You simply shift the payment amount from one credit card to the next. This method is the most efficient way of paying off your credit cards as it will pay off your debt faster. It also saves you the maximum amount of money on interest fee and financial charges.
Method #2 — Paying off the Credit Card with the Lowest Balance ( Also known Credit Card Debt Snowball Method )
This method involves aim of the credit card with the smallest balance first. The main advantage of this method is that you will begin to pay off your credit card debt. Since paying off a credit card with the lowest balance will take the least amount of time you will get a moral boost of becoming debt free from at least one credit card. This method provides a high level of motivation to continue with your credit card payment. In the earlier method you were paying off the credit card with the highest interest rate to save money on interest and financial charges. However if the credit card with the highest interest rate also happens to be the credit card with the highest balance then it could be a long time before you complete paying off the card completely. This could be discouraging for some consumers. Although the second method of paying the credit card with the lowest balance first will take you slightly longer than the first method and be a little more expensive it has a tendency to keep you motivated.