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How to Manage Your Debt, Part 3 |
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Pay off the credit card that has the highest interest rate first to minimize the interest you'll pay over your lifetime.
Use this approach to pay the fewest dollars in interest over the long run. For example, a card with a $1,000 balance and a 20 percent finance charge costs you $200 over the course of a year, while one that charges 15 percent costs you $150a savings of $50 if you pay off the card with the higher rate first.
Pay off the credit card with the lowest balance to free up your cash flow and help you feel you are making progress.
Use this approach to create more discretionary income in the short run by eliminating one minimum monthly payment. You may pay more interest over time on your cards collectively, but the relief of getting rid of even one card may be so motivating that it's worth the extra cost.
Don't carry a balance on more than one credit card.
Of course, it's best to pay off all of your cards in full every month. But if you carry a balance on more than one card, it can be easy to underestimate the total amount of your debt. For example, if your |
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