What is the easiest way to pay down debt? I have about $18,000 in credit card debt and I would like to know an easy and fast way to get rid of it.
FPA member Karen Pike, CFP®, CPA, MBA, suggests taking the following steps to pay down your debt.
- Figure out a minimum level of Cash Reserve for yourself and be sure to maintain those dollars during the process of paying down your debt. Emergencies always happen and you don't want to have to take on more debt.
- Assuming you have this base line Cash Reserve, figure out how much you have available on a monthly basis to allocate towards debt repayment.
- Rank your credit card by interest rate.
- Pay the most to your highest interest rate card and be sure to pay the monthly minimum to the remaining cards.
- After you pay off your highest interest rate card, then earmark those monthly payments to the next highest rate card, and so on.
“While you are doing all of this, I suggest you stop using your credit cards for new purchases,” said Pike. “Either pay with checks, cash or debit cards. This way, you won't be adding to your debt as you pay down your balances. This basically means, live within your means.
“If you have to use credit cards for new purchases, then I recommend you get a brand new card and be 100 percent committed to paying your monthly balance off in its entirety every month. In other words, do not carry over new balances that can also incur interest expenses."