Whether I’m speaking to a large audience or a small group, there is one question I am almost always asked: “What is the best way to pay off your credit cards, especially when you have more than one?”
My first piece of advice is blunt — STOP using them! Cut them all up and trash them. It’s tough, and it might sound harsh, but this is the absolute truth: as long as you have those little plastic cards in your wallet, they’ll keep coming out and your debt will keep increasing.
Before you give me the excuse that I’ve heard a million times let me counter it: No. You don’t need them for an emergency! What you need for an emergency is a buffer account. This is a bank account with a few thousand dollars stashed in it for unexpected expenses (but we’ll save that for another conversation).
For now, just trust me, cut those credit cards up and commit to paying them off.
In order to work out the best way to pay off your existing credit card balances, you’ll need to know the balance and the interest rate of each card. List them in order, starting with the card that has the highest interest rate at the top, all the way down to the card with the lowest rate. At this point the balances don’t matter so much – what you want to identify is which card is costing you the most in terms of interest.
The card at the top of the list is your number one priority. So each month, when you get your credit card statements, make only the minimum repayment required for all of the cards except for the one at the top of the list.
That card is the one that gets most of your love. Put all of your spare cash toward paying off the balance on that card, until it is completely paid off. Then move on to the card with the next highest interest rate and do the same thing.
If you’ve never completed a budget, now is the time, because you’ll need to work out how much spare cash you actually have each month in order to start smashing that credit card debt. Although it’ll take time and be a big commitment on your part, the feeling of being credit card debt-free is truly liberating.
I can say that from personal experience – I have been there, done that, and you can read all about it in my book Get Rich Slow, where I share my own dirty money secrets.
I know credit card debt can be pretty embarrassing, and often something we keep to ourselves, but remember that no-one is perfect. We’re all just chipping away and trying to get rich slow. If this has motivated you to make a change, share it with a friend and ask them to help keep you accountable. (You may just discover that he or she is also struggling with credit card debt, just as you are.) This is another tactic that can help you stay focused on your financial goals.
Please note this article is of a general nature and should be used for informational and educational interest purposes only. Please seek professional advice before making any decisions in relation to your own personal circumstances.