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How to Pay Off Multiple Credit Cards with Balances

credit card balances

While we’ve touched on a lot of topics here at Pursuing Points, one constant has remained. We strongly advocate for only spending money on a credit card that you can be sure you’ll be able to pay off, in full, come payment due date time. We suggest this because this is the only way to ensure you do not subject yourself to high interest rates and other fees. If you do subject yourself to these fees you’ll end up erasing most of, if not all of the benefits you’re earning as a result of your spending. While we’d love everyone to follow this advice to the best of their ability, its understandable that extenuating circumstances can put you in a situation where you’re carrying a balance on multiple credit cards. In todays article we’re going to talk about how to properly pay off your credit cards if you find yourself in such a situation.

In order to set the stage, lets assume that for the sake of this article, we’re carrying a balance of $1,000 on two separate credit cards. The first card has an APR of 16.99%, while the other has an APR of 25.99%.

First – Cut off the Spending

As best you can help it, the first step in paying down your balances is to cut off the spigot and stop the spending. Easier said than done of course, but aim to only spend what you absolutely must. You do not want to put yourself in any deeper of a hole than you’re already in. If you can stop spending but follow along with the rest of the steps, you’ll be debt free again in no time.

Then – Start with the Minimum Payments

Okay, you’re no longer actively spending on either card. The next step is to make the minimum payment on both cards. Different card issuers will have different methods for calculating what this number is. Chase as an example says that your minimum payment will be either $25 or 1% of the total balance, whichever is larger. You want to be sure that you make this minimum payment for both cards on time as a late payment will incur an additional fee.

Lastly – Use Remaining Funds to Pay On Highest Interest Card

Does that sound like common sense? Hopefully you said yes, but a recent study out of England showed that most folks do not follow this strategy. Rather, they opt to split their payments evenly across all of their credit cards with a balance. While this might make for some uniformity, its actually costing you money in the long run. The reason of course is that the higher interest card is charging you more interest on a daily basis. Remember our article on credit card fees in which we discussed how APR is applied daily to your overall balance. In this example your high interest card is costing you about $0.71 per day while the lower interest card is costing you “only” $0.47 per day.

Recap

If you find yourself in a situation where you’ve got an interest bearing balance on multiple credit cards, follow these steps to pay it off the quickest while saving you the most money on interest.

  1. Stop Spending
  2. Make minimum payment on all credit cards
  3. Take the rest of your funds and pay off as much as you can on the highest interest rate credit card

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