Paying Off Credit Cards

The first segment of this chapter looked at the high cost of credit. One of the best ways to save money is by minimizing interest payments. It is almost always best to pay off the debt with the highest rate first. (Refer to this Which debt first article for an example.) Pull out your debt tracker worksheet and look at the interest rates to help make a strategy for which to pay off first. You have to pay the minimum on all of them each month, of course, but extra money can be applied to the highest rate card/loan first. When that is paid off, you have the extra money plus what you were paying as a minimum balance on that loan to apply to the next highest loan. Work your way through all your debts until they're all paid off, if that's your goal.

Now if you're really in over your head and you are only able to pay interest on your credit cards each month, you will never be debt-free and will probably start falling behind soon. If you can't pinch any more pennies from your budget and have no prospects for extra income, you need to take some other steps to get out from under the debt. (Refer to this Repaying Credit article for a discussion of credit repayment.)

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