The first step to getting back on track financially is to eliminate credit card debt. However, how you do it isn’t always straightforward. What if you keep multiple credit cards and have multiple debts? How should you start?
Stacking – Paying off debts with the highest interest first
One popular debt repayment method is debt stacking. This strategy involves paying off debts with the highest interest rates first and maintaining minimum payment for the rest. Stacking might make it seem as though the smaller debts will take forever to get paid off but it’s a great option to eliminate high-interest debts that often never really reduce.
Snowballing – Paying off cards with the least balance first
Snowballing is the method where you pay off debts with the least balance and keep minimum payment on the rest. People who like doing things systematically prefer this method as it makes it easier to see progress as you will be getting rid of credit debt one at a time. It’s also a great way to get into smart budgeting habits.
The downside, however, is that debts with high interest rates will remain sitting for a while. This means having to throw money out to pay the high rates.
Signing up for a consolidated loan would also be viable if you are paying off several debts. By getting a consolidated loan, you will be able to pay off credit debt at a much lower rate. Unfortunately though, getting a consolidated loan from a bank can come quite difficult. It’s also not ideal to follow through if you are planning to use your credit cards while in the process.
Regardless of what method you choose for paying off credit debts, keep in mind that personal finance, for the most part, is all about behavior and only 20% knowledge. In the end, the best method is that which works for your situation.