5 Point Repayment Plan
When you have a pack of credit cards to pay at the end of each month, knowing how to manage the various debts can be a little confusing. With our five-point strategy we have made credit card repayments simple. Follow the principles below to organize and priorities your credit cards. More...
1. Always honor minimum payments
Arrange your cards in order of interest rates starting with the highest down to the lowest. If you are unable to pay a substantial amount on each credit card you should pay the minimum on the card with the lowest interest rate and pay the greatest amount of the most expensive card.
Whenever you pay less than the minimum your credit card company will consider it a default. A late or inadequate payment will also be recorded on your credit report, making future credit harder to obtain.
Anytime you pay less than the minimum, you’re considered late. Not only are you assessed a late fee, your interest rate might rise making it more expensive to carry a balance. If your other creditors use universal default, those interest rates might increase too. Your delinquency is reported to the credit bureaus. A single late payment in your entire credit history might not do much damage, but the more delinquencies you have, the worse it will affect your credit score.
2. Get Current On Any Delinquent Accounts
You should get caught up on any accounts that are behind. Again, as long as you pay less than the minimum, you’ll continue to be assessed late fees and be reported late to the credit bureaus. If you have any extra money in your budget after making your minimum payments, put it all towards bringing your accounts current. If you’re 180 days late or more, your creditor might charge-off your account or refer it to collections or both.
3. Bring Maxed Out Accounts Below The Limit
Anytime your credit cards go beyond your credit limit, it raises red flags to current and future lenders. It causes them to wonder if you can responsibly handle credit. Plus, over-the-limit fees will be added to your credit card balance as long as it stays over the limit. Similar to getting current on your accounts, put your extra money toward bringing your accounts below their credit limit.
4. Bring High Balances Closer to $0
To maintain a good credit score, you should keep your balances closer to $0. Focus especially on balances that are close to the credit limit. High credit card balances increase your credit utilization and hurt your credit score. By keeping your balances low, you’re showing that you can handle credit responsibly. Your credit score will reflect that.
5. Pay Off Balances With High Interest Rates
If you want to get out of debt quicker, you should focus on paying off those credit cards that have high interest rates. Since you pay more in finance charges on high interest rate credit cards, it’s wisest to pay those balances off quicker to avoid paying extra money to the credit card company. Of course, if your goal is to get out of debt, you should evaluate your credit card interest rates along with the interest rates of your other debt.
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