How do you usually pay down your credit card debt? Some researches surprisingly showed that no less than 1.4 million of credit card holders in the United Kingdom choose different strategy to pay down their debt. In simple words, it says that people pay off the credit card debt in wrong way! This is quite bizarre as many of us think that paying down credit card debt is as simple as looking at the total amount at the bill.
How to Pay Your Credit Card Debt the Right Way
People who hold more than one card can do better strategy in paying off the debt. If it is applied, it is possible to get rid of debt quite faster. It is said that avalanche method is an effective way to eliminate debt. Paying down credit card debt with this method requires you to list the debt by interest rate from the highest to the lowest. Pay off the minimum balance of each debt and allocate the extras to the one with the highest rate. This method helps you pay down credit card debt without too much effort.
Pay attention to this example. Let’s say a person has two credit card with $10,000 and $5,000 debt on each. He has to pay $1,500 every month. People normally will think of paying $1,000 for the large card and $500 for the small one. Instead, you can use the strategy. Paying down credit card debt according to the interest rate is much more recommended for this case.
Aside from avalanche method, it is found that snowball method is actually effective in paying down credit card debt. Harvard Business Review researchers already have proven the affectivity of this method. How does it work? Snowball method prioritizes the smallest debt instead of considering the interest rate. To get this way, you need to list the debt from the smallest to the largest. All you need to do is paying down all the minimum balance but the smallest.
Focus on the smallest and allocate possible cash each month to pay off the debt. After it is repaid, continue with the second smallest. Paying down credit card debt through this way helps you eliminate the debt from the smallest one. Logically, it gives you powerful effect to move forward. The motivation helps you to pay off credit card debt until you are free from it.
Many people find that this snowball method is highly effective. Derek Sall gives his testimony of using this strategy to pay off the debt. He had $100,000 credit card debt and was able to pay it off in 7 years. When you are successful in paying down credit card debt from the smallest, you will be motivated to get rid of the others.
In short, eliminating credit card debt is not only about dedicating your money to pay off the balance. It is more about strategy and method that you can use to free your life from debt faster. Paying down credit card debt with effective strategy helps you achieve debt-free life quite faster.