Finances in 55 Seconds: Create a Credit Card Debt Reduction Plan
One of the best things you can do for your finances is to pay down your credit card debt. Credit cards are notorious for high interest rates and fees. Once you are trapped in the cycle of making credit card payments, it can be difficult to get out.
And, worst of all, the interest that you pay on your credit card balances goes straight into someone else’s bank account. Interest, paid for the privilege of borrowing money, offers you no other benefit. It’s pure expense.
If you want to improve your finances, and move along the path to financial freedom faster, it is best to pay down your credit card debt as quickly as possible. Creating a debt pay down plan can seem a daunting task, but it doesn’t have to be.
You can put together a credit card debt reduction plan in 55 seconds or less:
1. List all of your credit card accounts
Make a list of your credit card accounts, jotting down your current balance, the minimum payment, and the interest rate. When I did this my list followed this format: BOA Visa – $2,500 – $75 – 9.99%. (16 seconds)
2. Figure out which order you want to pay them off in
Next, decide what order you want to pay your credit cards off in. Either order it by starting with the lowest balance, or by starting with the highest interest rate.
Paying of the high interest card will save you money in the long run, but there is something to be said for the emotional boost that comes from starting with the lowest balance and paying something of quickly. (7 seconds)
3. Decide how much you can pay toward debt reduction each month
Review your monthly budget, including expenses. This can be done quite quickly if you have personal finance software, or use a web app. Figure out where you can cut back on waste.
Experts estimate that most households waste 10% to 15% of their income each month. Look through yours, and decide how much wasted money you can reclaim and put toward debt reduction. (23 seconds)
4. Write your first debt reduction check
Take the amount you can spare from your budget and add it to the minimum payment of the first credit card you plan to tackle. So, if your minimum payment is $75, and you can spare $100 from your budget for debt reduction, your payment will be $175. (9 seconds)
Every month, make sure that extra amount is going toward the credit card account you are working on. You continue to pay the minimum on all of your other credit cards. When you pay off the first credit card on your list, you can take the entire amount an apply it to the next card on your list.
So, if your next card has a minimum of $65, you would add the entire $175 you have been paying on the first credit card to the minimum for a new payment of $240. Dave Ramsey popularized this time-tested technique as the “debt snowball.”
While it will take you considerably more than 55 seconds to get rid of all of your credit card debt, it doesn’t mean you can’t get started in less than a minute. A few seconds is all you need to kick start your debt pay down plan.