Some of our client say that one of their top New Year’s resolutions is to pay down credit card debt. What’s the fastest way to do that?
Some people like to tackle small credit card balances first, since paying off one account in entirety gives them a “feel good” sense of accomplishment. However, that’s not the smartest or fastest way to pay off debt, says a new University of Michigan Business School study. The best way to attack credit card balances is to pay down the account with the highest interest rate until it is paid off entirely, then move on to the next highest rate card. That minimizes the amount of interest that keeps piling up each month.
High debt is a top factor preventing consumers from achieving their financial goals. It’s virtually impossible to build wealth when the hole you’re in keeps getting deeper and deeper. With the interest rates on new cards averaging 14.56%, and the typical family who carries a balance juggling almost $16,000 in debt, it takes a lot of willpower and a systematic plan to get back on track.
Pay down your cards as aggressively as possible. Paying only the minimum can drag out repayment for decades and add thousands of dollars in interest. For example, paying the minimum on a $6,000 balance could take 24 years and cost almost $7,000 in interest.