Interest Rates Vs Debt Balances

Interest Rates Vs Debt Balances

WHICH WAY TO PAY DOWN DEBTS BALANCES VS INTEREST RATES

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If you are working on paying down credit card debts, you might find you are struggling with looking at paying down the one with the highest interest vs. the one with the higest balance.  This is a topic of much debate when it comes to financial experts.  While there is not a “right” way to do it, I will share what we did to get out of debt and the reasons why.

When you owe on your credit cards, your interest keeps compounding and that increases the amount you owe.  I am sure you keep sending in the minimum (or even trying to send in a little more) to each card.  Here is an analogy for you:

If you have a large fire going and dump a cup of water on it, you will do nothing.  You might make the flames go down for a minute, but they will return (usually stronger than ever).  You have to figure out a way to really tackle it and get it under control.

However, if you dump a bucket of water on that same fire, you may not put it out completely, but you will probably make it smaller.  If you throw two or three more buckets it, you can actually extinguish it.

The same hold true with credit card debts.  When you make small, minimum payments you are throwing cups of water on a fire.  However, if you send in a larger amount, you can actually pay it off much more quickly.  But of course, you can’t send in larger amounts to everyone at once, so you have to prioritize.

There is a lot of discussion about paying down higher interest rate cards first or those with a lowered balance first.  I recommend a lowered balance.  When you can actually pay off a credit card completely, it gives you a sense of accomplishment.  Suddenly, you feel like you can actually do this.    This is what is called the Debt Paydown Form.

In many instances, the card with the highest interest rate can also list one of your highest balances.  That means it can take a lot longer to get that one paid down and you may lose your drive and desire to keep at it.  It takes much longer to see results.   Plus, if it takes you 2 years to pay down one card, when, in that same time, you could have paid off 2 other bills, you might end up paying more in interest anyhow.  It can place you into an endless cycle.

Whichever way you decide to tackle those credit cards, it is good that you are doing just that.  While there is no such thing as good debt, credit card debt is the worst debt.  One day you will be able to live a debt free life — and it will be the most amazing feeling in the world!


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Phone: 702-677-4746
Dated: May 2nd 2017
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