Last time, we spent some time going over the right way to paying off a credit card balance. In a nutshell, the first step is to try to cut out using credit cards and switching to cash or debit cards. This way, you don’t add more to the balance. The next step is to pay as much as you can above the minimum payment. Third, keep repeating that process every month until the balance becomes $0. Based on the average credit card debt in five different nations—Germany, Japan, the UK, Canada, and the U.S.—many of us are looking at over $3,500 in credit card debt. Now, you may have more or less than that, but if your total credit card debt is spread across more than one card, and you’re not sure how paying off your balance the right way would apply to your situation, we’ll go over that today… Don’t Multitask Not much really changes for you if you have more than one credit card to pay off. But one thing you don’t want to do is juggle them. What I mean by that is, you should focus on one at a time. You don’t need to try to pay off all your credit cards at once. As you know now, the key to getting rid of your balance more quickly is to make a payment above the minimum. But if you have multiple credit cards, the idea isn’t to make payments above the minimum for each one. According to Experian, the average credit card user in the U.S. has four credit cards. If you’re the average person, and you want to pay them all off, start with one. This means if the minimum payment for all four credit cards is $35, make a payment above the minimum on just one of them. But remember, the one you choose is generally based on your balance. This method of paying off debt is called the debt snowball. Choose the one with the smallest balance. And if multiple cards have the same balance, choose the one with the higher APR (annual percentage rate), or interest, instead. But remember, you still have to do something with the other three… Don’t Forget the Rest While you’re busy making monthly payments above the minimum on your credit card with the smallest balance (we’ll call it Card A), make sure you still make the minimum payment on all the others. If you don’t, you’ll be charged a late fee… and interest will continue to build. Now, let’s say you have $170 left over this month. Card A, the first card you’re working on paying off, will be where these leftovers go. As I mentioned above, the minimum payment on all four credit cards is $35. That means you’ll actually put $205 toward Card A ($35 minimum + $170). And the payment on the other three would be $35 each. Next time, I’ll go over what happens next when Card A is paid off. It will look slightly different, but you’ll start to see why it’s called the debt snowball. It’s a simple concept, but it doesn’t necessarily mean you’ll get rid of all your debt overnight. Stay focused and determined, though. Be patient and stick with it. If you remain intentional, you’ll see that all your hard work will pay off.
With gratitude,
Melody C. Stampley, MS
Writer, Editor, Financial Coach
