Tackling Credit Card Debt

The average American household with at least one credit card has nearly $9,200 in credit card debt, according to CardWeb.com, and the average interest rate runs in the mid- to high teens at any given time.
–CNN Money

There are several different ways that people choose to tackle their credit card debt. Even if some methods will allow you to pay off your debt faster, I personally think that you should just choose a method and be consistent with it. Here are two popular methods I am aware of that people use to pay down high CC balances:

1. Paying Off Balances With Highest Interest Rates
Say you have three cards with varying balances and interest rates:
--Visa - $5,000 @ 3%
--Master Card - $500 @ 13%
--Amex - $250 @ 7%
You would pay off the Master Card first followed by the Amex, then lastly the Visa. The purpose of using this method is to avoid paying so much money in interest.

2. Paying off Amounts According to Size: Smallest to Largest Using the Snowball technique ( term used by Dave Ramsey)
This technique emphasizes the sense of accomplishment you feel when you pay off a CC balances, even if it is a small balance. This may keep you motivated to keep going with you goal of paying off all balances. Using the same numbers from the previous method, you would first pay off the Amex, followed by the Master Card, then the Visa. Once the Amex is paid off, apply the money you were using to pay it down to the Master Card. Then once the Amex and Mastercard hit zero, apply the money you were using to pay them down to the Visa. Paying off balances with high interest rates makes sense numbers-wise, but people (like me) get antsy when they can’t see immediate results in paying off debt. Here is a debt reduction planner I found on CNN Money that you can use to plan out the amount of your credit card payments and how long it will take you to pay off your credit card debt: http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp.
Tools like this are helpful for visual people like me that like to be reminded of their goals.

Other options that help you to pay off credit card debt faster:
--Transfer high balances to a 0% interest card
--Call your CC company and try to negotiate down your interest rate
--Throw any windfalls toward debt (after you have at least $500 in emergency savings)

Options I wouldn’t suggest you use to pay off credit cards:
--Refinancing your home
--Getting a HELOC
--Borrowing money from friends and relatives- Borrowing money may fix the problem, but actually taking the time and money to pay off your debt without help will make you think twice about running up those CC’s again!


I plan to use the ‘snowball’ technique of paying off my credit card debt which is on three separate cards. My smallest balance will be paid off this week, my other two balances are in the (gulp) 4 digit range. But it’s totally feasible to pay them down significantly by the end of the year and have them paid off in full by the end of the first quarter of 2009. I’ll give an update on my progress on paying them down at the end of the month.