Question:   How should I be paying off credit card debt? Do I pay off my highest rate cards first, the largest balance first, or other?

Answer:      Deciding on a strategy for paying down debt can be difficult. When multiple credit cards exist, it can be overwhelming trying to figure out what approach makes the most sense.

There are basically two well accepted schools of thought about the order in which you should pay down your debt.

In terms of pure number crunching, paying off the highest rate credit card will save you money overall. (See for yourself by using our free Credit Calculator.)

At first, you may think this is all the information you need, but you need to seriously consider the ‘human’ side of the equation as well.

We humans are quirky - we seem to become more motivated when we experience fast results from our changed behavior.

As a result, many debt experts take a completely different approach to paying off credit card debt. This second strategy is aimed at creating quick momentum and a sustained feeling of accomplishment.

If you have a credit card with a low balance, one that can be paid off within a few billing periods, focus all your energy on that card first.

When people see that within a few months a credit card balance reaches zero, they realize that they can pay off their credit cards and they become quickly convinced that progress is indeed possible.

It may sound counter-productive, paying off low balances first while high rate, higher balance credit cards continue to accrue interest. However, the amount your save on interest is quickly offset by the benefits of creating quick and positive momentum toward your debt elimination goal.

When it comes to paying off credit card debt that is large and constantly growing larger, it can feel daunting. Trying to pay off a big debt first can take a long time and tool often the consumer runs out of energy and goes back to their old ways as they sink lower into a deeper state of denial.

This is why experts believe starting small and working your way up from your lowest balance to your largest is a better choice. Every card you pay off and close will feel like a major victory and it will inspire you to keep going.

In order to really get the debt snowball rolling, be sure to apply the money you were paying on the first account and add it to the payment on the second. Once that second account is paid off, apply that payment to the third, and so on.

Even if you have multiple credit cards, remember that when paying off credit card debt, you must at least pay the minimum amount on all accounts in order to avoid fees and penalties.

So get started now. You can use our debt reduction calculator to plan each and every step in your debt elimination strategy

» How does the national economic condition impact my personal finances?
The US debt is growing at a rate never seen before. It’s staggering, and some might argue – criminal. The fact is that the national economy does impact everyone, but not near to the degree that you can impact your own financial situation.

» Should I consider using debt relief companies to start paying off my debt or is there a better way?
Do not fall for the scams offered by debt relief companies. There is nothing they will do that you cannot do yourself.

» What is the deal on department store credit cards – and what separate accounts should I establish?
Establish accounts where you save money, do not establish accounts that cost you money. For instance, department store credit cards are the absolute worst type of credit card on the planet due to their high rates and fees.

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