Let’s say, after careful deliberation, that you’re finally ready to make a change regarding your financial well-being. You’re looking at your credit card balances gradually rise month after month, and you know that something eventually has to give. Today is the day. It’s time to pay off credit card debt once and for all.

Like any mental health professional will tell you, the first step towards recovery is admitting there is a problem. That’s no easy task, but the next step is even more difficult: determining where to put any extra income you may have. Should you divide your payments equally among all your balances? Should you pay off credit cards one at a time? Following the steps below will help you begin.


Pay Off Credit Card with the Highest Interest First

Gather all of your credit card statements in one place and compare their interest rates. The higher the percentage is, the more money you are paying each month to maintain a balance on that particular card. To maximize your long-term savings, it’s important to eliminate the debt with the higher interest rate first before moving on to the others.

Assume you have four credit cards to pay down, and $100 in disposable monthly income to help do so. Instead of dividing your disposable income into $25 increments for each card, put all $100 towards the card with the highest rate. Even though you will have to settle for minimum payments on the other three cards, you will lose less money to interest as you move on to the next step.


Contribute 100% of Your Original Payment to Each Successive Credit Card

Once your highest-interest credit card has a $0 balance, roll the entire payment you were making on that card onto the one with the next highest interest rate. Using the same $100 might suffice, but ideally you want to contribute everything you were paying towards the previous balance, including the minimum payment. This way, the amount you can contribute to each successive card should stack with each balance you pay off.

Continuing the previous example, if each of your four credit cards has a $25 minimum payment, and you manage to pay off the highest-interest card with an additional $100 monthly payment, you then can contribute $125 extra to the next card. Including the $25 minimum payment that card should already require, your total monthly contribution towards that single balance should be $150. By the time you reach the final credit card, you should be paying $200 a month toward a single balance without any extra strain to your monthly cost of living.

Obviously, this is a simplified example and your number will vary depending on the specs of your cards. Also, since interest is recalculated every month at the turn of each billing cycle, it is unlikely that your monthly payment will remain fixed like in the scenario above. Despite these issues, this strategy should remain the same regardless of the individual figures, and it could potentially save you thousands of dollars in interest.


Stick to the Plan

As you pay off credit card debt, don’t make the mistake of assuming you now have extra spending money. You must be vigilant and resist the temptation to spend, or you will build back the debt you just eliminated. Instead of treating the elimination of one or two balances as a reward, treat it as an investment towards something even more meaningful. If you aren’t willing to sacrifice wants in favor of a debt-free future, then you might need to consider where your true priorities lie.

Canceling paid off credit cards may not be a smart strategy either, as closing credit lines can impact your credit score. 


Factor All Debt Into Your Strategy, Not Just Credit Cards

Debt is debt, regardless of who you owe money to. While we have focused on credit card debt, any situation involving borrowed money deserves equal respect.

While it is highly unlikely your car loan or student loan will have a higher interest rate than your credit cards, there’s nothing stopping you from factoring these debts into your debt-free endgame. Once you pay off credit card debt completely, consider continuing your trend and rolling that monthly payment onto the loan with the next highest interest rate. Imagine how quickly you will be able to pay off your car loan, or even your home loan, if you contribute an additional $200-$300 to it each month.

Yes, a debt-free existence is obtainable. All it takes is a little patience and a lot of discipline. The sooner you start, the sooner you can experience firsthand what a life without monthly payments feels like.