How To Pay My Credit Card Debt

How To Pay My Credit Card Debt – If you’re juggling multiple credit card balances, it’s likely to cost you a way to pay for plastic.

If you can’t pay off all of your card balances in full each month, your best plan is to optimize your payments using simple math: you’ll pay the least amount of interest and save the most money. Start by paying the minimum monthly payment on each credit card and then work to pay off the card with the highest interest rate first.

How To Pay My Credit Card Debt

In a study by the National Bureau of Economic Research, researchers found that people don’t use good math when paying off credit cards because they tend to ignore interest rates.

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The study found that the average household with two cards in the UK pays an extra $90 a year in interest because of how they split their payments. The most indebted households with more than five credit cards were paying $1,000 a year in unnecessary interest that would have been avoided if we had focused on paying off the cards with the highest interest first.

While some people try to pay off smaller debt first for the psychological benefit, the researchers found that most paid off the interest by paying off the debt “evenly.” what?

Balance settlement? Mathematics and logic aside, in this case people make payments in proportion to the total amount owed. For example, let’s say you owe $5,000 on one card and $2,500 on another and you have $1,200 to put toward your plastic this month. The researchers found that the average person would pay $800 for a larger balance and $400 for a smaller one, without taking into account interest rates or the cost of compounding debt.

Not that we want to overpay in interest, but a study found that our human brain is prone to logical errors, in part because credit card balances are the first numbers we see on statements. The total amount owed often weighs heavily on our minds and affects our decision-making process when determining how much to pay.

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Another big mistake we often make is focusing on the minimum payments and paying only the suggested minimum each month. No. This is a psychological trick designed by lenders to get as much interest as possible from you, possibly for years.

Behavioral economists often refer to visibly written numbers, such as the minimum payment on your credit accounts, as an anchor. Anchoring is a cognitive bias in which our human brain relies too much on the first piece of information provided (the anchor) when making decisions. Many of us see the anchor of the minimum payment, focus on it and see it as the right amount to pay. Q: Why would you ignore advice from a prominent figure? Answer: It is a manipulative trap.

[Related Study: Avoiding Anchoring: Analysis of the Minimum Payment and 36-Month Disclosure Mandated by the CARDS Act and How to Improve Cardholder Refund Systems]

A 2017 TransUnion Canada study found that while 47% of Canadians pay their credit card in full each month, 39% are unsure of the benefits of paying more than the minimum balance and 10% pay exactly how much required every month.

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I wrote about the costly mistake of credit card minimum payments in Are You Paying Only the Minimum Balance on Your Credit Card? – Yes, go to bed and wake up. (I’m here to help!)

Look, I’m all for keeping up with creditors and keeping to the minimum, but letting your card statement convince you that the minimum is the maximum required is costing you dearly.

Let’s say you have a balance of $2,500 at 19.99% and you pay a minimum initial monthly amount of $75. Let’s also assume you don’t add weight. At this rate, it will take you 16 years and 8 months to pay off the plastic. Plus, you’ll pay the bank $2,862 in interest, which is more than your opening balance of $5,362.

Do you really want to eliminate this balance and save interest? We ignore the banker’s suggested minimum and pay a fixed amount of $100 each month.

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By paying just $25 above the recommended minimum payment of $75 each month, you’ll pay off your credit card balance 13 years and 11 months sooner, and save $2,101 in interest. Total interest paid is $760, plus getting out of debt a decade early. It’s no wonder banks like it when you only pay the minimum.

The key is to get out of debt as quickly as possible with the least amount of interest, you need to strategically pay off your credit cards by paying off the cards with the highest interest rates first and paying more than the minimum amount. The math is really that simple.

Check out my debt reduction chart for inspiration on how to go beyond balancing balances and making minimum payments. Not only can you save thousands in interest, but after the weight of plastic, you can focus on life.

You will join 25,000 subscribers and receive the Cash and Carry newsletter every Friday. No spam, ever! One Click Unsub Written by Hanneh Bareham Written by Hanneh Bareham Arrow Rights Writer, Personal Loans and Debt Relief Hanneh Bareham has been a personal finance writer since 2020. She started as a credit card reporter before moving to student loans She is now a writer on the lending team, expanding her reach to multiple forms of consumer lending. Connect with Hanna Barham on Twitter Twitter Connect with Hanna Barham on LinkedIn LinkedIn Connect with Hanna Barham by Email Hanna Barham

Best Ways To Pay Off Credit Card Debt

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