Over the years I’ve written a number of articles about consumer topics such as debt, home ownership, etc.  I’m happy to start sharing them here for you all to enjoy and hopefully help some folks out during these tough economic times.

                                                   — Robert

For whatever reason some of us find ourselves with multiple credit cards with balances that seem to never go down. We pay each month and it seems like we will never get out of debt. In fact, the experts at Bankrate.com have reported that one of the main reasons that people often fall behind in payments is because they get discouraged because they feel that they are not making progress in paying off debt. There is a method thought that has been endorsed by credit counseling firms and consumer advocacy groups to help you pay down that debt and make small wins against the large goal. A process called “pay it down”.

The pay it down method works like this: Say you have 6 credit cards with various balances and interest rates. You begin by focusing on paying off one credit card (while still making at least the minimum payment on the other cards) and when you have that card pay off you take the amount you were paying for that card and add it to the payment you are already making on another card to pay it down. Like an upside-down pyramid, as you pay off each credit card you are paying the next ones off faster and faster. Let’s look at an example of how this works.

Say we have six cards with balances of $500, $750, $1250, $1500, $2000 and $6000 respectively. Each month we can afford to pay $150 for each card with a balance of $1,000 or more and $100 to all others. We begin paying the cards down using this formula for each card. After about 5 months (calculating interest) we have paid off the first card. Now we move on to the second card. We pay the original $50 plus the extra $50 from the first credit card for a total of $100 a month on it. In less than 3 months we have it paid off and we move to the fourth where we are paying $150 a month, but now we are paying $250 a month. We continue this trend across all the cards until they are paid off.

As you can see, this method gives us small wins along the way while working to pay off our large debt and all of our balances. Now there are certain factors that you should take into account when doing this. If you have a credit card with a zero-percent interest rate then it becomes less important than focusing on the card with the highest interest rate. The only exception to this rule would be if the largest balance is on the card with the highest interest rate. In that case you would want to give yourself smaller wins by paying off balances to keep you motivated so you would focus on paying off smaller balances at first, then work your way towards the larger balance.

Using this method many people find that it becomes almost like a game trying to see how fast they can pay off a card so they can double the payment on the next card. When you pass your first milestone and pay off one card you will see that every other milestone seems to arrive almost twice as fast because you are putting more money towards it. In our example above, when we reach the credit card with the $6,000 debt we will be paying $500 a month towards the balance – we can have it paid off in a little over a year!

If you find yourself with a lot of credit cards and various amount of debt give this method a try. By using the milestone approach you will actually see your hard work paying off debt and in no time you can join the ranks of the few, the proud, the ones who can hold their head up high and say “I am credit card debt free!”

Tags: credit cards, debt, finance