When you have debt on several credit cards, it can seem like a constant struggle trying to figure out which one you should pay off first. Sometimes, there isn’t any one answer. In other cases, there is a clear winner.
Freedom Debt Relief Review provides a few suggestions to help clear up any confusion around which card to pay off first.
This approach may not always be the most efficient, but it has some great advantages. When you have several credit cards with debt and high-interest rates, paying one off provides a lot of motivation to pay off the remaining cards.
That’s where lowest balance comes in. Given the following card balances and interest rates:
- $4000 @ 12.9%
- $9000 @ 15%
- $1500 @ 14.5%
The $1500 card is the winner and the one we’d target first. Wiping out debt on that card will show a lot of progress. Instead of just a reduction in balance, the card is completely cleared out. There’s no better motivation when it comes to paying off multiple credit cards.
Some people are disciplined enough that they can successfully follow other approaches. But we are assuming that isn’t most people. If you’ve accumulated high-interest rate credit card debt on several cards, you probably fall into the pay the lowest balance for motivationcategory.
Freedom Debt Relief reviews that in this example, interest rates are fairly close together and become a nonfactor in which card to pay down first.
Highest Interest Rate
Let’s reconfigure the above interest rates:
- $4000 @ 22.9%
- $9000 @ 15%
- $1500 @ 14.5%
The $4000 card is costing roughly $916/yr in interest. Or nearly 1/3 of the current balance. If we are targeting the highest interest rate, this is the card to target.
Freedom Debt Relief Review points out that the $9000 card is charging $1350 in interest per year, which is more than the $4000 card with the higher interest rate. What should you do in this case?
While the $9000 card is charging more interest in absolute terms, it isn’t when compared to its balance. Once the $4000 card is paid off, and you can apply more money to the $9000 card, the annual amount of interest it charges will quickly drop.
Let’s look at an example to understand how this works. Freedom Debt Relief uses a $1000 payment to each card for this example:
- $3000 @ 22.9% = $687 (a difference of $916 – $687 = $229)
- $8000 @ 15% = $1200 (a difference of $$1350 – $1200 = $150)
Freedom Debt Relief notices that even though the $4000 card has a lower balance, we save more in interest by focusing the majority of payments to it. $79 in interest to be exact.
The above example used equal payment amounts. If instead, $1500 would have gone to the $4000 card and $500 to the $9000 card, it would have resulted in an even more skewed ratio toward the higher rate card.
Highest Minimum Payment
Depending on your cashflow needs, paying off a card with the highest minimum payment can free up a lot of cash. If the balance on this particular card is one you can pay off in only a few months, it is probably worth it. This means more cash to put toward other cards.
Managing large debt by yourself can be scary. You don’t want family members to know your finances are spinning out of control. But who do you turn to? Freedom Debt Relief can be your confidant. It doesn’t cost anything to speak with them, and you’ll have a plan on how to get your debt under control.