Paying Off Your Credit Cards: The Five Step Plan

The current economic crisis can seem overwhelming and out of control – but you can exert more control over your own financial situation, and paying off your credit cards should be at the top of your personal “to do” list. By paying off your credit cards you’ll be able to focus on managing day-to-day expenses and even save some money, which is impossible to do when buried in credit card debt.


Step One: Get Organized

Take one month’s worth of credit card statements and make a list of what’s owed on each card, the minimum payment and interest rate and the payment due date. Read the fine print on each statement to keep track of any interest rate changes or other charges there might be. Make sure your monthly payment goes out on time, to avoid costly late fees. Some people find it easier to keep track of credit card and other bills with financial software programs. If you think an electronic money-management or bill paying system will help your strategy of paying off your credit cards, find one that best suits your individual needs.


Step Two: Prioritize Payments

If you owe money on several cards, experts advise paying off the one with the highest interest rate first. Make your largest monthly payment to that card until it’s paid off – and don’t use that card while you’re paying it off. Next, move to the card with the second highest interest rate. While paying off your credit cards it’s important to always send in more than the minimum payment; otherwise, you’re not doing much except paying the interest, and it will take longer to make a dent in the actual debt. Send in as much as you can each month to the card with the highest interest rate – and also pay more than the minimum on your other cards, even if it’s only an additional $10-20 each month. If it’s too discouraging to face a larger debt first, start with the card you owe the least on, which will seem more doable. Work from the bottom up, but while you’re paying off bigger amounts on that smaller balance, remember to send in more than the minimum on the higher cards as well.


Step Three: Negotiate

Call the credit card company that’s charging the highest interest rate and ask them to lower it. Even just a few percentage points will help. If it doesn’t work with one company, call another. Sometimes a credit card company will waive an annual fee or forgive one late payment charge. It costs nothing to ask, and you might be pleasantly surprised by the results.


Step Four: Consolidate

If you’re carrying several credit card balances, consider consolidating them into one debt. Then you’ll only have to make one monthly payment. Keep an eye out for low interest balance transfers (but remember, you’ll be paying transfer fees for each balance), and make sure the lower rate will last for at least six months or more. That should give you a chance to pay off most or all of the debt and avoid additional fees to do another balance transfer.


Step Five: Put the Brakes On!

Once you’ve begun to work on paying off your credit cards, put the cards away – or even better – cut them up! Whenever possible, pay with cash, check or debit card. When you do use a credit card, use the one with the lowest interest and be careful to pay the balance in full when the bill comes.



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