It is very unfortunate that the majority of American households have a great deal of charge card account debt. Even more unfortunate is the fact that credit card account education isn’t widely offered to the public. As a consumer credit counselor, I have worked with many clients that seemed to be buried under a huge mountain of credit card account debt. Fortunately for them, with a little bit of advise and commitment to follow a simple payment plan, the charge card account debt was gone in a matter of a couple of years without any strain on the household. In rare circumstances, it took more than a payment plan to solve the issues however, payment plans were a great way to start.
No matter what charge card or charge card account company my clients use, I always advise to start with a debt stacking and constant payment method. Coupled together, these payment methods could take years and thousands of dollars off of the total cost of paying off charge card debt. This is because these payment methods attack the interest on the accounts without having to pay more than what your minimum payment is rite now.
The Constant Payment Method
The constant payment method follows one basic principal, don’t ever pay anything less than what you paid to your credit card companies last month. As you pay your charge card bills, you notice that as the balance goes down, the payment goes down as well. This is because with most credit card accounts, the payment is calculated by a percentage of your balance plus interest for that month. I can understand if you can’t afford to send any extra money right now but, you can afford the minimum payment because you have been paying it right? This means that in 3 or 4 months when you receive a credit card bill with a lower minimum payment, you will be able to pay extra. I know it may only be $5.00 but it is something extra. If you continue to send in the same amount of money each month, after a year, you will be surprised at how much more than the minimum payment you will be able to afford.
The Debt Stacking Method
Debt stacking is also a simple process. The majority of credit card account holders know that higher annual percentage rates are the worst kind. The debt stacking method targets the high annual percentage rates first allowing you to focus on what is costing you the most over time first. When coupled with the constant payment method, you are sure to save plenty of time and cash!
Example Of Coupling Both Methods
Lets say you have 3 charge card accounts. Credit card 1 has a balance of $2,000 and a 9.99% APR, credit card account 2 has a balance of $1,500.00 and a 26.99% interest rate, and charge card account 3 has a balance of $500 and a 12.24% interest rate. Credit card 1 has a minimum payment of $200, Credit card 2 has a minimum payment of $215, and credit card 3 has a minimum payment of $50. If all you can afford is the minimum payments, your total charge card account payments will be $465. You should never pay any lesser amount. Lets say over 3 months charge card 1’s minimum payment drops to $197, credit card account 2 has a minimum payment of $211 and credit card 3 has a minimum payment of $49. Now you have $8 extra. This $8 should go to charge card 2 because it has the highest annual percentage rate. This means that you would pay $197 to charge card 1, $219 to credit card 2, and $49 to credit card 3. As the payments decrease you will be sending more and more extra money to the credit card with the highest interest rate. Follow this pattern until you pay off your charge card debt and you are sure to save time and money!
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