Paying Off Your Credit Cards and Other Bills
By Terry Rigg
If you maintain a balance on your credit cards you are probably paying
hundreds of dollars a year in interest. This is money that could be put to
better use.
There is a simple method of paying off credit cards that doesn't require too
much extra money each month. This method is called payment snowballing.
While your biggest gain will be from paying off credit cards, you can also
use this method to pay off installment loans, your mortgage, medical and
other bills.
By snowballing your payment you start paying off credit cards and adding the
money you were paying on the paid off credit card to the next one. This is
one of the quickest ways to eliminate your credit card debt.
I have developed a simple form to help with this process. At this point you
may want to look at a sample payoff schedule at
http://www.homemoneyhelp.com/sampleccpayoff.html . You enter the name of
the credit card, amount you owe and your actual payment on the form. For a
printable copy of "Snowballing Your Credit Card Payment Schedule" use this
link: http://www.homemoneyhelp.com/ccpayoff.html . You may enter your
figures on this form before you print it. It is best to list the credit
cards in the order you wish to pay them off.
There are two schools of thought about which way is best. Many experts
believe that paying the credit cards with the highest interest first is
best. You then go to the credit card with the next highest interest and so
on. Personally, I believe people need to see results quickly. I recommend
paying off the credit card with the lowest balance first and then go to the
next lowest balance, etc.
Whether you start with the highest interest rate credit card or the one with
the lowest balance it will ultimately achieve the same results.
Your next step is to determine how much you can afford to pay toward
eliminating the debt. Since you are already making at least the minimum
payment, you can start by adding the minimum payments for all of your credit
cards. Then check your budget to see if you can afford to add any money to
your minimum payments. Visit http://www.homemoneyhelp.com/BBOonline.html to
setup a simple budget. It's FREE.
At the bottom of the payoff schedule you will find a table to help determine
how much you can pay. Once you have determined how much money you have to
put toward paying off this debt, list it at the top of the form.
Your next step is to establish your scheduled payments for each credit card.
It is best to set a constant payment at or a little more than the minimum
payment to all of the credit cards except the one you are currently trying
to pay off. Keep paying this constant payment month after month even though
your minimum payment will go down. This alone will make your balance go
down faster than paying the minimum payment.
Refer to the sample payoff schedule at
http://www.homemoneyhelp.com/sampleccpayoff.html. You will see that the
Visa Card will be paid in the 4th month, requiring only a $15 payment of pay
off. These figures are only estimates because they do not include interest.
Notice that also in the 4th month an additional amount is added to the
MasterCard. To arrive at this figure, you simply add the $15 you paid
toward your visa to the $35 you pay on discover and deduct it from your
allowed amount. Example: $15+$35=$50; $130-$50=$80
One of the key points to make this system work is that you have to make a
commitment not to use the credit cards. Each purchase will throw you
further behind.
Terry Rigg is the author of Living Within Your Means - The Easy Way
http://www.homemoneyhelp.com/ebookadpage.html and editor of the Budget
Stretcher web site. Join the thousands of subscribers to The FREE Budget
Stretcher Newsletter and get great articles, tips, downloads and a lot of
Budget Help by visiting his home page at http://www.homemoneyhelp.com
