Credit Card Carlee Asks Kim

Dear Kim,

Financial planning was never one of my strong suits and now, it’s gotten me into a financial bind. I don’t have a lot of credit card debt but what I do have, I see is hurting me. I began paying off bills at higher payments each month but didn’t take into consideration that paying them at the time would eventually add up and I’m finding myself very low on money right now. I have always been under the impression that paying credit card payments will increase your credit score and help you financially but I’m not seeing anything from it. Is there a better system to paying credit card payments or paying them off in full? 

Sincerely, 

Credit Card Carlee

Hi Credit Card Carlee,

There are several different methods to approach paying off credit card debt, let me talk about two of them. The first is to list your credit cards by amount that is owed. Start with the smallest and work down the list to the one you owe the most on. Then each month, put all your extra cash toward that smallest balance, while paying the minimum payment on the others. When the first one is paid off, cross it off your list and take that larger payment along with the minimum payment on #2 and begin paying it off.  It’s called The Snowball Method and the idea is that as you add each payment to the next card on your list, you are paying more on the higher balances. The second method is to list your cards in order of the interest rate you’re paying on each. Start with the highest interest rate and pay that one off first. Again, you’re taking all your extra cash and applying that to the first balance, while paying the minimum on the rest. As a financial planner, I prefer the second method, but there is more emotional benefit to starting with the smallest balance since you’ll be crossing the cards more quickly. There is great satisfaction to crossing off a credit card that has been paid off. Of course, while you’re doing either of these methods, try to avoid putting any more charges on your cards. Before beginning any debt reduction method, build your emergency fund, and you should have money saved to handle things that come up outside your budget. It also makes sense during this time to limit spending outside of necessities. Remember the difference between wants and needs. A good way to avoid using credit is to remove your credit cards from your wallet. I had a family member that was struggling with credit card debt, and we took all her credit cards, put them in a ziplock bag full of water and put them in my freezer. An extreme measure, perhaps, but it worked. She lived in another state, so it really helped. Even if you put them just in a drawer, you still have to make an effort to be able to use them. It will help with impulse purchases. Something I do is leave items in my Amazon cart for a few days. When I go back, frequently I find I don’t really want the item after all.

Sincerely, 

Kim 

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