Setting Up A Plan To Pay Off Your Credit Card Debt

Many Americans want to have no debt, but with high interest credit cards

, car loans and other debts, it is hard for many people to pay off their debts without a strategy. It is crucial to setup a strategy and goals when paying off credit accounts. Ultimately, by paying off your debts, you will have free money per month and will also raise your credit score. Raising your credit score can affect your power to get approved for new loans, like home loans, and the rates attached with these accounts.

Setting Up A Game Plan

To pay off your debts, you first want to setup a game plan. Debts are put into two different categories, revolving debts like credit cards and installment debts like car loans or home loans. Revolving debts can have variable rates which can change at any time. Many credit card companies change these rates quickly and sometimes without notice. It is important when setting up a plan that you know what type of debt you are trying to pay off first. ordinarily you want to pay off a revolving debt first.

Once you have the accounts separated into the two categories, you when want to put the accounts in an order. You can place the order of the accounts by high balance to low balance or low balance to high balance or by high intestest rate to low interest rate. The order you place the accounts is going to be the order that you want to pay off the debt.

For example, most people like to pay off a low balance account first because this is much easier to see results right away. You could payoff a low balance credit card in two months while a high balance credit card could take more than ten months to payoff.

Begin Action of Your Strategy

Now that you have your credit cards in order, you need to set your monthly budget. How much are you going to pay per month towards your debt? Once you have that amount, now it's time to start working on the credit card debt.

With your monthly budget, only pay the minimum balance on all the credit cards except one. Take the rest of the money and pay towards the remaining credit card. For example, if you have 5 credit cards and have budgeted $1000 per month towards the debt, then you first want to pay the minimum balance on 4 of the cards. If the minimum payments on these 4 cards are $500, then you would have $500 left to pay towards the final card. Once this credit card is paid off, you can now begin paying more to the next account on your list.

You will keep this plan into effect until all revolving accounts are paid off.

Since installment loans have a loan term, it is important to work on revolving debt first. Once the revolving debt has been paid off, then you can begin paying off the installment debt faster.

Keep in mind that the above plan works well if you do not charge any new debt onto the credit cards.

Alternative Options Like Debt Consolidation

There are alternative options to paying off debts in a timely manner like a debt consolidation loan. If you own your home, you could even qualify for a cash out home loan and consolidate all debts into one monthly payment. The more accounts that you can combine into one loan, the easier it is to pay off your debts.

by: David White.

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