Last night I read the chapter in Suze Orman’s Women and Money about credit cards. I have allowed myself to become uncomfortably burdened with this type of debt of late, and I need a plan for getting rid of it. She talks about how your credit affects your FICO score, the number that creditors use to determine if you can even get credit, and how high your interest rate will be. I learned that if your max out your cards that affects your FICO score, that your available credit to debt load ratio should not be over about 10%, optimally. (Yikes! I’m in trouble on that one!) A late payment on any credit card can cause all your credit card interest rates to go up (can, not will). So it is smart to pay your credit cards off, but not cancel them. Cancelling them will change that ratio in a negative way. You should just pay them, and then put them away. Or freeze the cards in a block of ice. Or cut them up. Or put them in a drawer, all of which will at least slow you down and give you time to think before using them. Whatever way your willpower blows.
Here is a plan for paying the cards off.
1. List your credit cards and the balances owing on them in order of interest rates, highest to lowest.
2. On the card with the highest rate, figure out the most you can afford to pay each month. It has to be greater than the minimum payment. Double that if possible.
3. Plan to pay the minimum payment on each of the other cards. Keep the amount that is minimum today your payment in future months, even though the minimum amount will drop as the balance does.
4. When the first card is paid off, add the amount you have been paying on it to the next one in line. When that one is paid, move to the next and so on. The total amount you pay each month toward credit cards will stay the same until you have them all paid.
5. To speed it up more, you can add a “cash attack” plan to this. Anytime you have any extra cash at all, make an extra payment to your highest rate card.
This isn’t rocket science, I know, but it is so easy to feel overwhelmed by credit card debt that having a concrete plan for paying it is kind of settling, I think. Using this plan, I think I will have all mine paid off in, oh, two years or less. (Red-faced shame…how did I let this happen?!)
Onward and upward.