Q: I recently found a new job after a few months of unemployment. I’d like to pay down my credit card debt as fast as I can. I’d used the cards (I have three) to buy groceries and pay some bills, but I’ve run up a few thousand dollars. — B. Santos from Boise, Idaho
A: Good for you for finding a new job and wanting to address your credit card debt right off the bat.
Trust us, you’re not alone. According to Fitch Ratings, the average credit card debt per household is $15,788, according to CreditCards.com.
The best way to pay down that debt as quickly as possible is to craft a good plan. We’ve come up with some specific steps to help out. If you follow them, you should not only be able to pay down your debt faster, but you'll be able to cut into interest rate costs, which will improve your credit score.
- Make a list of all your credit cards you might have. Jot down the outstanding balance, the card’s interest rate and minimum payment. Refer to your monthly statement for this information. Or better yet, sign up online with your credit card provider and open an account. The key data will be right there. Don't forget to include store cards as well.
- Prioritize all of your card debt. List cards with the highest interest rates at the top, and the remaining cards in descending order. Knock off the costliest cards first.
- Check out the minimum payment on each card and add it up. Go ahead and pay the minimum amounts on your lower-interest cards.
- Now, take some of that extra cash you’re earning from your new job — $50, $100 or $200, or whatever you can afford — and apply it to your “top” card, or the one with the highest interest rate that’s costing you a small fortune. Just remember, the more cash you can plow into that high-interest rate card payment, the sooner you’ll pay it off. If that means peanut butter and TV dinners instead of dining out for a few months, so be it. You’ll sleep better knowing that you’re chopping away at your most destructive piece of debt.
- Keep going until you pay off the first credit card. When you’ve paid that card off, flip the second-highest rate card to the top of the list, and repeat the process.
If you keep at it, you’ll take the quickest path to paying off your credit card debt. If you really want to hit the accelerator, negotiate a “pay off” amount on your highest-interest rate cards with your card carrier. Cardholders have been known to take 30% or more off their total card balance by paying off the debt in one lump sum. You’ll likely have to cancel the card, but so what? That’s the reason you got into so much debt trouble in the first place.