Many people would like to start reducing their credit card debt, but sometimes it’s hard to know where to begin. In addition, there are so many different recommendations out there regarding the best way to pay down debt, that it can leave people feeling overwhelmed or confused. Rather than focusing on one specific method, we’re going to share with you 3 ways to pay down credit card debt so you can live debt free. After reading over all of the options, you can then decide which method will work best for you and your financial situation. We’ve also listed some pros and cons of each method to help you with the decision making process.
Method 1: The top down approach
The top down approach involves putting as much money as possible towards your credit cards with the highest balances. For example, if you have 3 credit cards, you’d pay as much as possible every month to the card with the highest balance, while still making at least the minimum payments on the other two cards.
The pros: As your balance starts going down, your payments will become more manageable and won’t be so high. This will free up money in your budget every month as your payment gets lower. This is a positive if your minimum payments on one or two cards are pretty high.
The cons: If your credit card with the highest balance has the lowest interest rate, your cards with higher rates will continue to grow.
Method 2: The bottom up approach
The opposite of the top down approach is the bottom up. With this approach, you make the minimum payments on your higher balance cards, but you put all of the money you can towards your cards with the lower balances.
The pros: The biggest advantage to this method is that you will be able to see positive results quicker. By sticking with small balance cards at first, you will feel a sense of accomplishment when you get one paid off. That positive feeling will help give you motivation to keep going with your debt reduction plan.
The cons: As with the first method, the cards you’re paying off sooner may have lower interest rates, therefore causing the balances on your other cards to continue to rise.
Method 3: The high interest rate approach
Using the high interest rate approach, you start putting all the money you can towards your credit cards with the highest interest rates while still making at least the minimum payments on any other cards.
The pros: By paying the most money on the cards with the highest interest rates, you’re going to save money in the long run as the lower the balance, the lower amount of interest you’re paying on that balance.
The cons: You may not see a lot of movement with your balances at first since the card or cards have a high interest rate, therefore resulting in a longer time to pay down.
The best way to pay down credit card debt is the method that works for you. The essential step is starting to work at it and finding a method that meets both your personal and financial goals.