First and Foremost I would advise you to take a hard look at your credit report! To get a copy of the credit reports go to: www.annualcreditreport.com.
After you have received a copy of your credit report total up all of your debts and prioritize them. There are two ways to sort them: By Credit Card Balance or by the Interest Rate on the Credit Card.
If you have been keeping up with my posts you will recall that I am a huge Dave Ramsey fan and an advocate of his baby steps program.
Dave would tell you to sort them by balances and start with the smallest balance. Concentrate on paying that credit card off and once you have succeeded continue on to the next on the list.
However, other financial advisors emphasize the importance of prioritizing your cards based on interest rates, focusing your efforts on the cards with the highest rates first and moving down the list.
I believe the solution depends on the person: If you are a person that must see results to say motivated then Dave’s approach will probably be best: Prioritize your cards based on the cards balance, pay the smallest balance first and once you have completely paid the card off proceed to the next. Always pay the minimums on the rest.
The goal is to improve your credit and become debt free – not ruin your credit by only making payment on one card
However, if you are very analytical and somewhat disciplined: Then I would advice you to focus first on paying down the credit card that is nearly maxed out. Pay minimums on the others. Next, start paying off the card with the highest interest rate. Pay minimums on others.
Be honest with yourself and what it takes you to stay motivated and pick one of the two. Most people need to see results to stay fired up and eventhough prioritizing your cards based on interest rates is the most “logical” answer - you may have to wait a little longer to see results.
- Call your credit card companies, tell them you've got offers for cards at lower rates and ask them to lower your rate. If you've paid regularly, they are likely to negotiate.
- Stick credit cards in a drawer. Don't use them, but don't close accounts. Closing these accounts can lower your credit score. I highly recommend cutting the cards so you don’t have access to them at all! Out of Site – Out of Mind!
- Do automatic withdrawal from your checking account to your credit cards so you're never late.
- Use only debit cards. Money comes straight out of your checking account. You're not charging anything.
- As you continually pay off cards and free up cash make sure you put any additional cash toward your debt. Do NOT use it toward anything else. You monthly credit card payments should increase as you make progress.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.
~William A. Ward
~William A. Ward