What is the best way to pay off mulitple credit cards?

[Nermel9]

Hi everyone!

So one of my new year's resolutions is to eliminate credit card debt, I'm just not sure what the best way to go about it is. I have 4 cards. 2 of them have really, really low limits, with really high interest. I've had these cards since college, back when I had awful credit, these were the first 2 I got when I started rebuilding it. They are almost at their limit, because I can never get them down by paying the minimum, or maybe $5 or $10 extra. I want to pay off and get rid of these cards, but I've read that you shouldn't cancel cards because it looks bad on your credit report.

2 of my other cards have good interest and are not near their limits, but there is still $$ on them that needs to be paid off. I'd like to keep these for plane ticket purchases, rental cars, that kind of stuff.

My question is...what is the best way to pay off multiple cards? Should I pay them off one by one, concentrate on one at a time and pay the minimum balances for the rest until I pay one off and can move on to the next? Should I pay the maximum that I can on each card each month? It just seems like that approach is going to take forever. Should I pay off the 2 cards that I don't want first, then worry about the 2 I want to keep and pay them off? I'm so confused. It seems like everything you do with credit is wrong.

And once I have those 2 cards that I really don't want anymore, should I just keep them open because I've had them for so long, or should I close them? What would be better for my credit?

Thank you for any advice!

 

[sookie]

I would keep all the cards open.
I would pay your two highest interest rate cards off first. So the two smaller ones that you have had for a longer period of time.
After that - you put them away, cut them up, whatever. Just don't use them. But don't close them. If you close them, your closing your longest history card, which isn't always the best idea.
Then I would attack the other two lower interest rate cards, with an effort that once they are paid off, that you use them for a small purchase here or there to keep them open for activity. You can do the same thing with the smaller cards too (seriously - 5 or 10 bucks will do it) to keep them open for your credit history length. But a lot of people will just let them sit (or they will cut them up) and they will eventually close because of inactivity.

Other than that - good luck!!! And congrats for making the decision to become debt free!!

 

[iheartpeterpan]

I would do Dave Ramsey's debt snowball. Choose the card with the smallest balance, attack that one and get it paid off. Then, take the money that you were paying on that card, and add it to the next smallest balance payment until you get that one paid off. Etc. Etc. until you are out.

I would shred the cards but keep the account open for your credit report.

 

[Reddy]

I know several people who do the Dave Ramsey (sp??) thing
you pay all extra to the highest interest rate card until that one is paid off, then all of the money goes to the next card.
least say you have 4 cards (ABCD)
card A has the highest rate & mini payment of 50
card B is next mini payment of 100
Card C is next mini payment 100
card D last to be paid off mini payment 200
less say you have an extra 25 in the budget - so Card A gets 75 until it is paid off (all others keep their 100 or 200 payment - I don't care that next month it is 99 & 198 they stay the same for now until it is there turn)
when card A is paid off, card B now gets in starting budget plus the 75 that went to card A so it gets 175 until it is paid off
card C will get all of the extra so 275 goes to it now that A&B are now both 0

& remember no more using the cards until they are paid off - if you have to use one then you have to pay that too with the balance

 

[TnTWalter]

I am a fan of the snowball effect...there is power in checking items off a list. Dave Ramsey fan or not, most like his strategy for 'dumping debt'. Good luck.

http://www.daveramsey.com/article/get-out-of-debt-with-the-debt-snowball-plan/

 

[NYCDiane]

There are a couple of things you can do:

The "snowball" route as listed above

OR you can use the credit card calculators at Bankrate.com (just google credit card calculators and choose the result that comes up w/the bankrate site). The way you do this is: You will enter in your balance and your APR. Then enter how long you want to take to pay it off and click "calculate" and it will tell you how much to pay each month to achieve this. The other option is to put in your balance and APR and how much you're going to pay each month. When you click "calculate" it will tell you how long it will take you to pay the card off.

Either of these routes is great. It gives you an achievable goal so you're not overwhelmed.

 

[NotUrsula]

On high-rate cards, snowball in reverse if necessary; even if they are not the ones with the lowest balance, do them first, because you will free up more money in the long run by saving that interest.

Double the payment on one of these, and pay the most you can on the others until you kill off the first one, then add that money to the amount you pay to knock down the second, etc.

Also, to cut the interest further, instead of sending one monthly payment later in the billing cycle, split it into two partial payments; paying part of it 15 days earlier helps to reduce the interest a little bit, and on high-interest cards, every little bit helps.

As to the two accounts that you don't want, it's OK to close them; just ask the issuer for a letter that shows they were closed at your request. That will be helpful to have if your credit rating is questioned down the road.

 

[CajunDixie]

On high-rate cards, snowball in reverse if necessary; even if they are not the ones with the lowest balance, do them first, because you will free up more money in the long run by saving that interest.

Double the payment on one of these, and pay the most you can on the others until you kill off the first one, then add that money to the amount you pay to knock down the second, etc.

Also, to cut the interest further, instead of sending one monthly payment later in the billing cycle, split it into two partial payments; paying part of it 15 days earlier helps to reduce the interest a little bit, and on high-interest cards, every little bit helps.

As to the two accounts that you don't want, it's OK to close them; just ask the issuer for a letter that shows they were closed at your request. That will be helpful to have if your credit rating is questioned down the road.

Sorry I disagree about closing the 2 unwanted cards. If you're so lucky the issuer actually bothers to send you the letter saying you closed it, the letter does absolutely nothing for your credit score. To improve your credit (not your original goal but no sense harming it either) getting your overall balance down to less than 75% helps. But say you close those 2 cards your 2 existing cards may push you back over that 75%. And a shorter credit history (which will happen if they are your 2 oldest lines) hurts your credit score also. Even if you now have no plans that include getting new credit you have to remember it takes time to improve your credit.

I suggest you do some reading at creditboards . com

 

[eduk8r26]

Suze Orman was on the Today show this morning and said to take the credit card with the highest interest rate and pay as much as you can on that. Pay the minimum payment on the others. Then when that one is paid off, do the same with the next highest interest rate and so on till they are all paid off.

 

[cornflake]

The how to pay them off debate aside...

Have you tried to negotiate a lower rate with the two with the high interest? Just call them up and say the rates are very high, you've been a customer for a long time, have other cards and those other cards are offering very low interest rates on balance transfers, and you'd like to know if they can lower the interest rate, because otherwise, you may be forced to transfer the balances over and close out the cards.

They may not but many companies will just lower the rate for you to keep you from doing exactly what I described.

You can also try a consolidation loan at a lower rate if they won't do it.

Peer-to-peer lending places, like LendingClub, offer good rates for people with good credit. If you have good credit, and don't owe like $100,000, you can likely get a loan to pay off all the cards, at a much lower rate than you've been paying, pay them all off in one shot and then have the single, agreed-upon loan payment for however many months (usually 36 or 60). Bonus to a peer-to-peer lending place is that actual people are lending you their own actual money, not a giant conglomerate, and those people, taking a chance on you, are the ones who get the (lower) interest.

There's nothing wrong with just paying the cards down but... why pay them that level of crazy interest if you can avoid it? As you say, you've been paying it for years and still owe. So...

 

[peacelover]

I agree with calling your credit card companies and just asking them to lower the interest rate.
I have done that before.
one company asked me how much my lowest rate card was, and I told them, and they matched it. another company just said no. But it never hurts to ask.
The way I did it was to pay off the lowest balances first, but also paying the minimum plus a few extra dollars per month on each of the other cards.
It worked for me.

 

[Marionnette]

Have you considered doing a balance transfer with a lower interest rate? If you were to consolidate it all onto one of the cards that is not maxed out using a balance transfer offer that gets you a lower interest rate, you would only have to keep track of one payment. Then you can attack that one bill with everything that you can throw at it each month.

They have to apply your payments to the higher interest rate first, so you will be paying the original charges off on that card while saving interest charges that you would have been accumulating on the higher rate cards. Don't be surprised if the higher rate cards call you when they see that you paid them off in one lump sum. They'll know that they just lost a ton in interest charges and they'll want you back as a customer. When they do, negotiate a lower interest rate with them. Don't do this so that you can run up another debt. Do it so that IF you need to fall back on the card in an emergency, you will already have the lower rate. You will be in a better position to negeotiate the rate after the balance transfer than you will before it.