Last week I paid off a credit card - hallelujah!. It was an AMEX Gold card, which as most of you know is the infamous card that has to be paid off within the month it's used. (Although, they do actually allow flex-spending on charges over $200.). Our bill was due on April 28th and basically the ENTIRE amount of the card was due with this months payment. So I crunched some numbers and decided we needed to just suck it up and pay it off. It was a big hit to our pocket but it's worth it. Hardy opened this card in 2004 and it's the "oldest" card we have. We choose to keep it active to show our loyalty and history. I had a lot of inquiries about how we did it, so I thought I would blog about it and share what little knowledge I think I have on paying off debt.
I have learned the best way to pay on credit cards / loans where you will actually notice a difference is possible in the following ways:
1. Make weekly payments -vs- monthly payments. Even if you only make a $20 payment per month, make four weekly payments of $5.00 instead. This throws off their calculation to charge you daily interest. You will still be charged interest but not nearly as much.
2. Always pay over the minimum payment - - even if it's only by $5 or $10 - - eventually you will start to notice the principal balance drop.
3. If you have a student loan, always make an effort to pay off your government loans FIRST.
4. If you have a large balance on one card and are offered a special 0% interest rate to transfer a balance, do it, BUT only if you know you can pay it off or pay it down as much as possible before the interest rate begins. A lot of the 0% interest offers have some of the HIGHEST interest rates once the promotion has ended.
There's a big debate on which accounts to pay off first, if you have more than one. The main three are: highest balance / highest interest rate / lowest balance. For as long as we've had credit cards, we always make monthly payments on every account. It is hard at times, but we got ourselves into this mess, so we're going to get ourselves out of it. If/when we come across extra money and are able to either make a significant payment or pay off a card, we do have a selection process. Hardy still has about $1200 left on his student loan from 2002, one would think we would pay it off immediately, but we haven't. His student loan (as with most) has a very low interest rate, and the monthly payment has been the same for the last 9yrs so it isn't as unpredictable as our other accounts. I personally like to apply extra whenever we can to the highest interest/highest balances. We still have a good bit of monies outstanding so we aren't perfect (far far from perfect), but we accept the responsibility. I don't hate credit cards, they have been there for us when we really needed the help, but I do wish we made better choices before spending some times.
***One thing to also remember is that even if you don't have a balance on a credit card, you still have that limit available to you. If you go to apply for credit anywhere, whether for another card or some type of loan - - they look at how much debt is available to you.
Example : If you have 3 cards with no balance but their limits are $2000 each, it would appear to a creditor that you have $6000.00 worth of debt to your name. Of course your credit report will show whether or not you have an open balance due.
I hope this is good advice, even if only to 1 person. If any of you have good advice - I would love to hear it!!
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