Focus on one CC at a time or pay interest on all each month?
Hi and forgive me if I'm recreating a question, but I've looked and can't find the answer to my question.
My husband and I have 2 credit cards and a personal loan. What would be the best method of paying down? Should we focus all our monies toward one card to pay it off and make the minimum on the other 2 or should we pay the interest on all and pay what we can above and beyond? Any advice will be appreciated.
You'll probably need to figure out what is most motivating to you. Obviously, do pay at least the minimum payments for all credit cards.
Personally, I found it the most motivating to do one at a time -- seeing a debt be reduced significantly was helpful in keeping me going. I generally pick the card with the lowest balance, since that would be quickest to pay off, but do check your card's interest rates and take that into account. Paying down the card that has the highest interest rate may save you money in interest long-term.Reply
And I am the opposite. I make the minimum payments on all, find the one with the highest interest rate because it's costing me the most, and pay that off first.
But I don't like paying for the privilege of using other people's money, so what I did in the past was to find a credit card with a very long 0% APR introductory offer for a balance transfer and then did a balance transfer. Figure out how much you have to set aside every month to pay that sucker in full at the end of the promotional period and do it! Make the minimum payments on it meanwhile and do not use it for purchases during this period. Use your other cards as paid-in-full cards with only budgeted purchases from categories backed by cash. Pay off the other credit cards in full every month. Never pay credit card interest again!Reply
Budget & pay as much as you can on the "target" card and enough for the minimum payments on the rest. Ideally you would arrange for the card with the highest APR to be the one with the lowest balance and use this as the "target" for aggressive debt reduction. This both minimizes interest paid and gives you an early "win".
You can make fee-less transfers from Card A to Card B by making budgeted purchases on Card B -- which raises the Card B Payment Available -- then move money from the Card B Payment category to the Card A Payment category. (Leave enough to cover the minimum payment amount in the Card B Payment category.)
It's useful to free up one of the cards to use as a paid-in-full card for normal usage -- BUDGETED PURCHASES ONLY. (Especially so if that is a cashback/rewards card.)Reply
Hi Sky Blue Clarinet !
As you can see, answers on this question will vary. :)
It comes down to what you're most comfortable with and how you prefer tackling that debt. Paying a loan off early will save you money and so will paying more than the minimum on a credit card. A number of users on the forum use undebt.it (which now also links with YNAB!), it lets you play around with your numbers and see just how much extra payments can help.Reply