I have 3 credit card debts, how can I get them paid off the cheapest way?

Debt, Financial Planning, Personal Finance
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January 2016

The most important part of the answer is probably the most obvious, but warrants particular attention: Slow down your credit card spending. One of the most efficient ways to cut into your debt balance is to avoiding increasing it in the first place. The best strategy to cut spending is to first understand and then manage your spending by creating very specific monthly budgets. You’ll quickly begin to notice some totally unnecessary or frivolous outflows, particularly costs set up through autopay, that you can cut out of your budget entirely. By limiting and closely monitoring your spending, you’ll be well on your way to cutting the debt.

Another thing to consider before actually paying the debt is the way in which you use your cards. It’s important to be very smart about where and how frequently you spend on each card. For example, you may choose to spend more on a particular card because it offers the best in rewards points, but chances are that card also has the highest interest rate or yearly fees. You might also consider pausing credit card spending altogether by choosing to pay in cash for a certain period, if possible.

In actually paying down the debt, you more than likely will need to pay significantly more than the minimum payment to quickly cut the debt. The first key is to focus on the card that costs the most in interest per month. While this would typically be the card with the highest rate, it may instead be the card with a lower rate but higher debt balance. Check your monthly statement to see which card is hitting you the hardest, then go after that card first. This doesn’t necessarily mean you should focus on this card until it’s completely paid down. If you pay down a card to the point that another card begins to cost more a month, consider switching your payment focus.

When it comes to deciding what amount to pay down on a monthly basis, that process again comes down to budgeting. Once you have that monthly budget in place, you’ll know exactly what’s left to apply to the debt. In general, the more you can pay down, the better. If you can pay down multiple cards at once, even better. It’s important to try to use incoming funds to pay down the cards, rather than dipping into any savings that you may need in an emergency.

There are other options to consider, including contacting your card institution to at least ask about lower rate options. It may also be possible to transfer balances from a card to another card (at the same institution) with a lower rate. It’s best to speak with a card rep to understand the fine print of what a transfer may cost. There is also the option of a personal loan, which certainly comes with its own risks you’ll need to consider. Before even considering a personal loan, make sure the loan has a significantly lower interest rate than your current credit card debt. Keep in mind that you should only consider a consolidation method if you believe you’re unable to pay off the debt at your current rates and that you actually plan to tackle the debt burden.

September 2017