Erase Debt As First Step To Improving Your Finances

When you are thinking about your financial plan and future, take a good hard look at how much debt you’re carrying, particularly consumer debt such as credit cards. As opposed to a mortgage or, even, student loans, credit card debt can weigh you down with huge interest rates and large monthly payments. Just the stress alone will make you want to work hard to erase debt for good.

Start by looking at your credit cards. Figure out how much you owe and your APR. Some advisors tell you to build momentum by paying off the card with the lowest balance first and then taking the extra money to put towards the next card and so on. However, it makes more sense to pay off the card with the highest APR first because this is truly where you will save the most money. High APR credit cards can cost you tens of thousands extra if you only make the minimum or nearly the minimum payment.

As you begin to pay down your debt, your credit rating will improve once your revolving balances are less than 50 percent of your total credit available. At that point you may be able to negotiate a better interest rate and switch to paying off the credit with the next highest rate. Keep in mind that for the most part you no longer can simply transfer balances to zero-percent cards without paying a sizeable fee of three percent or more. While this may seem like a pretty fair trade-off at the beginning, be sure that you can pay down a substantial portion of the debt before the introductory rate expires. Also make sure that the official rate isn’t higher than what you were originally paying before the balance transfer.

Beware of quasi-scams that claim to be able to erase your debts. Although they may be able to get your debt reduced or written down, the result will be about the same as if you had gone ahead and declared bankruptcy. If your aim is to erase debt and protect your credit rating, you need to pay off your debts one credit card at a time.