2013 is upon us, and with the dawn of a New Year comes some New Year’s resolutions. If you’re carrying credit card debt, then paying down that debt should top the list of your New Year’s resolutions for 2013. Continually being saddled with large credit card balances can severely harm your credit score, making it near impossible to obtain a loan for a new home or automobile when the time comes. Navigating the ins and outs of credit card debt can be confusing, however, so here are four simple guidelines to keep in mind in order to most effectively pay down the debt on your credit cards.
- 1. Pay off your high interest credit card balances first. This guideline is simple. If you have multiple credit card accounts that you are carrying debt on, you want to make sure to pay off the card that is charging you the most interest. While this may seem obvious, many people fail to understand that the higher their debt gets on a card with a high APR, the faster they will dig themselves into a debt hole.
- 2. Consider consolidating your credit card debt. If you have multiple credit cards carrying significant balances that you are having trouble paying off, you could apply for a balance transfer credit card in order to consolidate that debt. When shopping for balance transfer credit cards, you will want to make sure that the credit card you apply for offers a lengthy 0% Introductory APR on balance transfers period so that you have ample time to get back on your feet and pay off that debt without incurring interest charges.
- 3. Make the minimum payment every month. Even if it seems as if you’re drowning in credit card debt, you want to make every effort possible to at least pay the minimum payment required every month on all of your credit cards. Failure to pay the minimum payment can result in a big knock on your credit score, as well as a significant increase in your credit card’s monthly interest rate. You also run the risk of incurring excessive penalty fees.
- 4. Pay off your credit card balances before saving money. While it may make some sense to keep saving cash instead of paying off your credit card debt, this logic is flawed. Credit card interest rates are almost always going to be higher than any interest payments you would earn from saving money. In addition, the cash you do end up earning is subject to taxes. It is also a bad idea to set yourself up with a terrible credit history for years to come.
This article was written by Logan Abbott. Logan is the editor of MyRatePlan.com, and a personal finance and credit card expert with over a decade of experience.