The Best Practices for Paying Off Credit Card Debts

Credit card convenience....Aside from being alliterative, the phrase has a nice ring to it. There's something thrilling -- yet oddly comforting -- about buying something today and paying for it later. But as with most things that sound too good to be true, running up your credit cards can drag you into a vortex of interest charges that significantly increase the real cost of a purchase. Paying off credit card debt requires vigilance and discipline.

Pay Early

Or at least on time. One quick way to watch your debt swell is to see late fees added to it. Despite the Credit CARD Act of 2009, card companies can charge you $25 for the first late payment and $35 for each subsequent in a six-month period. Use automatic deductions from your checking account. Or, set email, smartphone and calendar reminders if you have to, but pay credit card bills on time. Moreover, states ABC News, if you do make your payment early in the billing cycle, you'll be "reducing the average daily balance that interest is based on!" That means you'll be paying less interest over time.

Pay Often

Or just pay more than the minimum due once a month. Depending on your balance amounts, paying more than the minimum can end up saving you hundreds in interest. For example, let's say you buy a couch for $2,000 at an interest rate of 18 percent. The monthly minimum might start at $40 and drop gradually to $20 as the balance decreases. If you pay the minimum, it will take you 19 years to pay off. The total cost will be a staggering $5,862; the $2,000 in principal plus $3,862 in interest. Double your payments, however, and you'll be finished paying in just seven years and four months. Interest charges will amount to $2,831, a whopping $1,031 less. Even better, according to ABC News, if you adopt a biweekly payment schedule -- even if you pay in each installment only half what you would normally pay per month -- you'll have paid more money by the end of the year. Why? During two of the twelve months, you'll actually be making three payments. And reducing your balance sooner reduces what you'll pay in interest over time.

Pay in Full

Of course, if you should happen upon a windfall, such as a bonus or inheritance, call the bank for a payoff amount and pay the balance in full. You'll not only stop the incessant march of interest charges and due dates, you'll know the relief of having at least one debt off your plate...and off your schedule. Then you can, if possible, increase the monthly payments to any remaining cards.

Pay the Highest-Rate Card First

Suppose you have three credit cards with interest rates of 12, 16 and 18 percent, respectively. The card that charges you 18 percent interest is the most expensive. It costs you more than the others to, in effect, borrow money to make purchases. Even if the minimum due on the highest-rate card sounds low, in reality, it is eating away at your financial security. Retire that debt first, then turn to the next most expensive card, and so on.

Pay With Your Savings Account

If your savings account earns a measly return -- 2 percent to 4 percent -- and your credit card charges 15 percent to 21 percent in interest, you will save more in the long run by using your savings to pay down your credit cards. You can always build up your savings again after the horror of interest charges is behind you.


About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.