subject: DIY Debt Management - Getting it Right [print this page] Most people can draft and follow their own debt repayment plan without any outside help - provided they don't keep using their credit cards. Methodically implementing a cash only lifestyle also has the added benefit of training you to live within your means. You can keep one card handy for emergencies, provided you always pay it off each month.
When deciding which credit card balance to pay off first, consider a mix of approaches to get the most benefit in your situation. Here are 4 options to weigh:
The Smallest Balance First
This approach gets you to a zero balance on one of your cards the quickest, sometimes providing the incentive needed to continue with your debt payment plan. The psychological boost can be a big help, but you could end up paying more in interest if other debts have higher rates.
The Highest Balance First
This approach can take long to achieve your first paid off balance and doesn't offer an immediate impact to your credit score. However, it is the most recommended approach since your largest balance if paid off first.
The Balance Closest to Its Limit
Maxed out balances give lenders just cause to raise rates and they're doing it right and left these days. Paying down high balance debts can help your credit score and ultimately decrease your overall interest costs.
Meet Somewhere in the Middle
For most people the best option often ends up being a hybrid of the three approaches. A good option to consider would be to pay down the card that's closest to its limit first, then pay down your highest rate debt next.
Whatever approach you choose, put all your efforts into paying off the targeted debt, while paying the minimum on all your other debts. Once you have the targeted debt retired, decide on your next priority and refocus your energies there. This targeted approach will help you to eventually become debt free, if you commit you it and do not accumulate any more debt.
This whole process can be made even easier if you opt into an automatic payment plan that automatically pays a set amount on your account each month. If you are like the vast majority of people trying to keep up with their busy lives, this can really simplify the process and eliminate any temptations to deviate from your plan.
Finally, don't close your accounts or lower your credit limits once you have paid them off unless you absolutely cannot control your spending. Closing accounts or lowering limits will have a negative effect on your credit score.
