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Your Plan to Pay Off Multiple Credit Cards Quickly
Are you overwhelmed with credit card debt? If so, you are not alone, credit card debt in America is at an all time high of $1.129 trillion! If you are looking for the best way to pay off multiple credit cards then you are in the right place!
In this post I’ll share the credit card myths that are keeping you in debt and the strategy to pay off your credit cards once and for all!
Credit Card Myths
Before we go into the strategies of how to pay off your credit cards, let’s bust some credit card myths that are keeping people in debt.
Focusing Too Much On Credit Score
Despite the mounds of debt, most Americans believe that having a high credit score is an indicator of financial success. But all the only thing your FICO score really tells you is how much you love debt.
Instead of focusing on FICO, increase your savings and decrease your debt.
All About Rewards
Rewards are another big reason why people hold onto their credit cards. Yes I love free stuff too but have you really stopped and did the math on those rewards?
It takes a long time to really build up points to even get anything of value. If you are carrying a balance each month and not paying them off then you are paying for those rewards.
Let’s use the Target REDCard for an example. Target has both credit card and debit card options.
For the sake of simplicity we are going to focus on the 5% savings benefit, which you can get by using either card.
The Target Credit Card interest rate of 29.95% APR (at the time of this post, interest rates can change so here is Target’s updated fees).
If you use the Target Credit Card for a $200 purchase you will save 5%, which comes to $10 savings.
Target’s billing cycle is 25 days. Letting that balance carry over (not paying your bill in full on the due date) will accrue interest. With a 29.95% APR and a $200 balance, the daily interest accrued is $4.10.
That doesn’t include compound interest or late fees. That original $10 savings soon won’t be worth it.
But if you had the Target Debit card, you can still earn your 5% savings but without the hassle of additional interest or fees.
Debit Cards Don’t Work as Well
Debit cards work the same way credit cards do during the transaction phase. Prior to debit cards, credit cards were used to hold reservations. But with the growing digital age, debit cards work just as well as credit cards. I haven’t used a credit card in years and I have been able to make hotel reservations.
Stop Using Your Credit Cards
If you really want to get out of credit card debt then you have to stop using your credit cards. Using your cards as you are aiming to pay them off is not helping your progress.
Cut Your Credit Cards
Yes, cut up those cards and throw them away! By discarding them you won’t be tempted to use them again. If that sounds outrageous to you then start with those extra store credit cards. Then cut your main credit card.
You may even feel empowered by cutting those cards up! It is a great first step to getting serious about paying off your credit card debt!
Update Online Accounts
With all the online shopping we do these days it’s not enough to cut up the credit cards. Your information is probably stored in all your favorite online shops for easy purchasing and subscriptions. Update those accounts with your debit card information.
Make and Live on a Budget
A written budget gives you a clear picture on how much income you have, expenses, debt payments. It will also show you if you have extra money available to throw at your debt or how much you are short on to be able to meet basic expenses.
I use a zero-based budget, which means you list all your income for the month then all your expenses for the month. Adjust your budget so income less expenses equals zero.
If you have left over money after you do your budget then use that money to pay down your debt!
If you don’t have any left over money (or just want some more to accelerate your debt payoff), then it’s time to see what kind of expenses you can cut back on and/or increase income.
Continue to play with the numbers until income – expenses equals zero. Using a budgeting app that does the math for you makes this super simple!
Establish a Emergency Fund
A common phrase I would hear growing up was “having a credit card for emergencies.” But what if instead you had money saved for emergencies?
According to The State of Personal Finance in America, 49% of Americans said they have $1,000 saved in an emergency fund. That means half of Americans are using credit cards for emergencies and digging themselves deeper into debt.
Before you start putting all your extra money into paying off your credit cards, save $1,000 in a starter emergency fund.
Having some cash on hand available for a car repair or a surprise medical bill will help you from going into more debt while you are trying to get out of debt.
Make a Payoff Plan with the Debt Snowball
Once you have your $1,000 savings in place it’s time to make a credit card pay off plan with the debt snowball method.
The debt snowball method will help you pay off your credit cards quickly by focusing on one card at a time.
Here is now the debt snowball works:
- List all your debts from smallest balance to largest balance. Within your list include the minimum monthly payment and interest rate.
- Pay minimum monthly payments on all cards and make an extra payment on the first card on your list – the one with the smallest balance.
- Continue to put that extra payment on that first card until it is paid off, while making the minimum payments on the other cards.
- Once that first card is paid off, put that payment onto the next card on your list. This adds a larger extra payment to the next card.
- Continue to go down your list until they are all paid off!
Why pay the smallest balance off first instead of the one with the largest interest rate?
This is a common question when it comes to paying off debt. Starting with the largest interest rate first is called the Debt Avalanche method. You might think you will save more money by paying off the largest interest rate cards but the difference isn’t that much.
I like the debt snowball method because it gives you quick wins, which helps you stay motivated during your debt free journey.
I compare the debt snowball and debt avalanche methods in my post, How the Debt Snowball Can Help You Pay Off Debt Faster.
Close Your Credit Card Accounts
As you are knocking off your credit cards one by one with the debt snowball you will want to close those accounts.
A credit card account can’t be closed until the balance is zero. Once you have paid off every penny of your credit card, call customer service and request to close the account.
Make it clear to them that you want to close the account and don’t fall for anything they say to convince you otherwise. They want to keep you as a customer so they will say or offer anything to do so. Hold your ground and tell them you want it closed.
Write down the date, time and name of the customer service rep for your reference. Ask them for a written letter to be sent to you confirming that the account has been closed. This is key to making sure the account will be closed. Don’t take their word for it. If you don’t end up receiving that letter you have the date from your original request and who you spoke to. These calls are usually recorded so they can’t fight the facts.
Conclusion
Having a solid credit card pay off plan will lift the weight off your shoulders. Paying off debt is one key component to financial health. Download the Financial Wellness Checklist to track your progress!
Related Articles
Make a Budget: 5 Simple Steps to Get Started
How to Use the Debt Snowball to Pay Off Debt Faster
Financial Safety Net: The Power of an Emergency Fund
Best Way to Pay Off Multiple Credit Cards
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