The Best Way to Pay Off Credit Cards

For many, paying off credit cards is the first step in becoming debt free. You'll never pay off your debt by paying the minimum monthly payments, and so you must use an effective strategy. Paying off your credit cards takes dedication, and perhaps surrendering a few extras, but the feeling of being debt-free at the end is worth the sacrifice.

Facing Your Debt

Often, the scariest thing about paying off credit cards is taking a good look at what you do owe. If you've never done this, you may not understand how much debt you have and how much you're really paying.

Go through your credit card statements thoroughly. Write down how much you owe on each one and what the interest rate is. If you can, transfer the debt with the highest interest rates to other cards with lower interest rates.

The Snowball Effect

The Snowball Effect, described by author Dave Ramsey in his book "The Total Money Makeover," involves paying the minimum balance on all of your cards except one. You apply additional money to that one card until you have paid it off. Then, you focus all of the money that you would have paid towards that card on the second credit card until it is paid off. Eventually, when you get to the final bill, you are paying enough to pay it off quickly.

There are two theories to the Snowball Effect. One is to pay off your credit cards in the order of highest interest rate to smallest. This makes financial sense, but if your debt with the highest interest is the largest, it can take time to pay off. The other theory states that you should pay off your debt in order from lowest balance to highest. This may not make as much financial sense, but it often gives you a better feeling to completely pay off one of your debts.

Increasing Your Income

While this seems an obvious step, this doesn't have to be in the form of a pay raise. You can take a second part time job, do odd jobs from home or even sell some of your unused items. When doing so, apply that new-found income towards your debt.

Decreasing Your Spending

Being frugal is another way to quickly pay off debts. Create a monthly budget and stick to it. Look for ways that you can save money, such as eliminating the cable bill or switching to a slower Internet connection. Then, use the money that you save to increase your Snowball Effect.

Remember though, that some expenses actually help you to spend less. For example, a slightly higher grocery bill may mean that you spend less money eating out.