Which credit debt should I pay off first?

Citing Nerdwallet report, each American credit card holder keep a credit balance as much as USD 16,000, a highest level in six years this research conducted. This means every month you would have more than one credit payment request. How we can deal with this debt and payment with certain income matters in this case. These solutions can help you get back on track of debt-free plan.

Figure types of your credit debt

That must be the first question from a wise household. Basically you could be advised to pay a balance the highest interest rate first, but it must be frustrating if your balance is too huge. Therefore, I think you should choose one of these two approaches.

If you have a low interest credit card or interest-free account to make a balance transfer, you can pay off the small balances as top priority. This approach helps you motivate yourself in a long term of debt handling as well as gain some credit scores. A small victory can give you a momentum to stick with the plan.

The second approach benefits you if the lender are charging you a much higher interest rate than other balances. At the same time you can’t lean on the low rate or 0% APR card to refinance your debt. You have to pay on this high rate balance as soon as possible before it reverts to another higher rate.

Related: Should I max out credit cards?

Create a plan

Writing down your plan in all small details about which credit debt you’ll fight first and how much you’ll put to your balance toward is crucial. That comes from a fact that we ease to fall into a debt hole due to a low budget. You should know your monthly expenses and the debts that you handle, and secure a line in this low budget for your credit card payments. That’s good if you can pay as much as you could do since you are pushing yourself to pay off the debt rather than buying something else.

Effect on your credit score

Why? This is for people to buy new house or car in near the future. Your first priority objective is a lower credit utilization rate which is weighed 30% in the FICO mix algorithm. The suggested action is to pay down credit cards which are near the credit limit. That will have a positive impact on your credit report and a lower interest rate debt.

A freedom from credit debt would take you time. Taking small steps towards by lowering one by one balances in wise move, you will see it’s easier. You keep paying the debt in time instead of buying a new thing intentionally, the new horizon will come to you sooner.


Originally published at yoursmartcredit.com on August 22, 2016.

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