Pay down credit card debt | Using science to pay it down faster

Paying off debt

Paying down debt is easier if you use science to guide your decisions. Image: Flickr / Moneyblognewz / CC-BY

If you are working to pay down credit card debt, you have a lot of choices to make. Depending on how many cards you have and the amount of credit card debt, maximizing your money can be tough. Science has shown that the decisions most people make to pay down credit card debt should be re-thought.

The science of how to pay down credit card debt

In an effort to pay down credit card debt, studies have found that most people do not make the best financial choice. If given the option, most people pay down the credit card debt they can “get rid of” first, even if it has the lowest interest rate. This is because closing a loan or credit card makes it feel like you are making more progress, even if it gets you out of debt slower. Instead, the card with the highest interest should be paid off first.

Understanding credit card debt interest

The interest on credit cards should be the first consideration if you’re working on paying down debt. Cards and loans with the highest interest cost you the most money. The annual percentage rate is what the credit card company is charging you just for the privilege of owing money. The highest interest rate costs you the most money and compounds the fastest. Even if you have a small loan that you could pay off, it is smarter to put money toward the highest interest debt.

Basic steps to pay down credit card debt

Now that you know which credit card debt you should pay down first, how do you go about it?

  1. List all your debts. Order them by interest (APR) and start paying on the highest interest ones first.
  2. If you don’t have one, create a basic household budget to find out how much you can spend to pay down credit card debt.
  3. Pay more than the minimum amount. Minimum payments keep you in debt – paying extra means paying it off.
  4. Find extra money to pay down your debt. Try recycling or finding a part-time job.
  5. Don’t raid your savings. While it may seem like an easy answer – borrow from your 401k or house – leaving yourself some breathing room for unexpected expenses is important, lest you end up having to use your credit cards and end up in debt all over again.



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