Prioritizing Your Debt: Strategies to Stay Organized

/ BY / Managing Debt

Have you resolved to reduce your credit card debt in the coming year? If you’re serious about seeing those outstanding balances dwindle, you need to develop a repayment strategy that will help you remain on plan.

  1. First make a list of all your credit card debt, of the minimum amount you need to pay on each card each month and of the interest rate that you’re paying on each card.
  2. Next, put your credit cards away and resolve not to use them again until you’ve paid off all the balances. If you put an extra $300 a month of your paycheck towards reducing your bill on one card and then charge $400 that same month on another card, you’re not making any progress on debt reduction.  (The only time you might want to continue using cards is if you have a rewards card. You can use that credit card to pay continuing monthly expenses such as phone bills or cable bills, but be sure you set aside the cash to make cover those expenses.)
  3. Determine how much money you’re going to earmark each month for debt reduction. To do that you’ll need to add together all your minimum payments on your cards—make sure that you keep up to date with all of them—and then decide how much more you can put towards reducing your balances.
  4. Now you have a decision to make—and here’s where the strategy comes in. There are a couple of ways to approach debt reduction.

    The first way—and the one that makes the most sense from a financial standpoint—is to get rid of your highest interest debt first.  Under this scenario, you will take the money you’ve earmarked towards debt reduction and put it towards reducing the balance on the card with the highest interest rate. Once you’ve reached a zero balance on that card, you pay off the card with the next highest interest rate. Continue with that method until you’ve eliminated all of your credit card debt.
  5. The second approach considers the psychological factors involved in debt reduction. Suppose you have outstanding balances on five credit cards, and your biggest balance is on the card with the highest interest rate. It may take you months (or even years) to get that first card paid off. In the meantime you still have all these other credit cards with outstanding balances. It can be discouraging because you feel like you’re not making progress. You may even be tempted to give up on your debt reduction plans.

    If this is likely to be a problem for you, take a different route. Choose the account with the smallest outstanding balance, pay that off, and then move onto the card with the next lowest balance. Even though you’ll still have that big debt left, you’ll get a psychological boost from seeing account balances zero out one after another.
  6. Finally, don’t forget the possibilities of reducing your debt using by transferring it to low interest credit cards and 0 balance transfer credit cards. These cards can help ensure that as much of your payment as possible is going towards debt reduction. Be sure to check how long the low or 0-interest period will last, and what interest rate you’ll be charged once you’re past that introductory period. Unless you can pay off the account within that initial time frame, you may be sabotaging your debt reduction efforts by transferring your debt to a card with a higher interest rate.
    There are no comments.

Leave a comment


Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.