Credit card debt has become a popular topic for discussion lately. This is due in no small part to the fact that the economy is still sputtering while the problems of unemployment, underemployment, plunging home values and tight lending standards continue. Consumers have largely lost the ability to tap into their homes’ equity as a source of funds, making high-interest credit card debt much more difficult to resolve. As a result, many are turning to debt relief solutions, such as credit counseling and debt settlement, but knowing how to smartly pay off your debt can also be effective.
There are currently two methods of paying down credit card debt being advocated, each of which has its share of proponents and detractors. The first method advocated is to devote the largest portion of credit card payments to the account charging the highest interest rate, while making just the minimum monthly payment on the remaining accounts. The other method being promoted is to pay off the smallest balances first, regardless of their interest rate. The advantage of the first method is primarily financial, in that it ensures that the lowest dollar amount is being paid in eliminating the debt. The advantage of the second method is primarily psychological, in that the consumer may receive gratification more quickly because the number of accounts paid off is greater within a given timeframe. However it can be argued that the first method also offers significant psychological advantages, as the consumer is aware that they are paying off their debt as quickly and at the lowest cost possible (given equivalent monthly payment amounts).