How do I start to pay down my high credit card balance?

To bring your balances down efficiently, you should create a payment schedule. To do so, gather your most recent statements, and answer the following questions:

• What is the credit card balance?
• What is the interest rate?
• What is the minimum payment due?
• What percentage of your balance is required for a minimum payment?

Then, review your budget. To get out from under quickly, send the creditor as much as you can consistently until you are free and clear. The best way to do this is to plan ahead by committing yourself to a fixed payment every month until you achieve a zero balance. If you set aside the amount for this purpose in advance, you will be much less tempted to spend it elsewhere.

As you plan your budget and determine what your payment will be, remember that you should always pay more than the minimum amount due. Here’s why: Let’s say you have a current balance of $2000, an APR of 18% and a minimum monthly payment of $50, or 2.5% of the balance. If you stopped using that card as of right now, and paid the ever-decreasing minimum, it would take you more than 18 years to rid yourself of that balance, and will cost you $2615 in interest.

But what if you decided to take your current minimum due and pay that same amount every month until your balance reaches zero? In this case, you would have the debt paid off in a little over five years, with interest payments of $1077. That’s an improvement.

Better yet, suppose you’ve committed to clearing that debt off your plate as fast as you can, so that you can use the money for savings, retirement, emergencies and your kids’ college fund. If you paid $50, or double your current minimum, every month, and paid that amount consistently until you reached a zero balance, it would take you just two years to get to that point, with a total of $396 in interest. That’s quite a difference, isn’t it?

Monthly Payment

Number of Years to
Pay Off Balance

Total Interest
Paid

Minimum amount due
(2.5% of balance each mo.)

18 Years, 9 Months

$2,615.00

$50

5 Years, 2 Months

$1,077.00

$100

2 Years

$ 396.00

It’s obvious that minimum payments are a great way for the credit card companies to make lots of money, and a losing proposition for you, the consumer. Many people pay the least amount possible month after month, year in, year out, because they feel that they cannot afford to send more. Or, they just prefer to use any surplus funds for other purposes. But as you can see, you will be far richer by reining in your debt and spending your money wisely. Good efficient budgeting will enable you to take control of that credit card balance and become free of it once and for all.