Most of us always expected to have a mortgage or car payment and maybe even a student loan but many Americans never dreamed that they would carry the huge amount of credit card debt that looms over their monthly budget each month. Here are some sound and effective strategies for eliminating credit card debt as soon as possible. It takes discipline yes but small changes in habits can make a huge difference in how quickly you pay off credit card debt. The first step to financial security is to create a monthly budget. From here you’ll know just how much you have in discretionary funds to off debt each month. Once a monthly budget has taught you what you have each month to use; now you need to decide which debts to pay off first. Which debts should I pay off first? It doesn’t take a rocket scientist, crystal ball or financial genius to figure this one out. You want to start with whichever debt has the highest interest rate and usually that is a credit card. Does it really matter? As the following example illustrates, it really does. Debt Pay Off Scenario:Mortgage balance of $150,00 and 6% interest rateCredit card balance of $10,000 and an 18% interest rateIf I paid an extra $100. 00 towards my mortgage, I would save fifty cents on interest this month and have additional savings on principle each month thereafter. But if I send an additional $100. 00 to my high interest payment, I will save $1. 50 this month and have additional savings on principle each month thereafter. Paying extra toward a high interest debt:-Saves more money on interest each month-Accelerates the payoff time of high interest charges- Increases monthly cash flowOf course if you have more than one high interest credit card, begin with the one with the highest interest. Check out these tips for reducing credit card interest. The Real Cost of Making Minimum PaymentsInterest rates on credit cards vary but most have a rate that is between 15% and 22%, with store cards at the upper end of this range. Many even have a provision that will increase the interest rate several points if certain terms are not met or if certain rules are not followed such as if a payment is received after the due date. Here’s an example of what charging $10,000 on a credit card really cost you in the long run if the minimum payment is $200. 00 and you only pay the minimum payment each month:Minimum Payment Scenario:Principle Balance: $10,000Monthly Payment: $200Months to Pay Off Balance: 94Total: $18,622Total Interest: $8,622So as you can see the trip to Disney World that you charged could end up costing you 80% more than you thought. Does Sending Extra Reduce Credit Card Debt? Here’s the same example but now the minimum payment is $200. 00 but you are sending in $300. 00 a month. More than the Minimum Payment Scenario:Principle Balance: $10,000Monthly Payment: $300Months to Pay Off Balance: 47 (the last payment may be lower)Total Payback: $13,967Total Interest Paid: $3,967You can see that sending only $100. 00 more than the minimum payment each month could save $4,655 in interests and cuts the number of months of payments in half. The top strategies for eliminating credit card debt are to pay off the highest interest debt first, always send more than the minimum payment and always make payments on time. Additionally, avoid adding any new charges to the cards while you’re trying to pay them down if at all possible.
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