Why You Might Be Paying Your Credit Card Bills All Wrong

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If you’re like me, every month you reluctantly hand over your hard-earned cash to pay your credit card bills. And while it’s the right thing to do, sometimes it feels like you’re not making any headway on the debt.

Consumer debt started dropping as the COVID-19 pandemic took its toll, and it continues to decrease. Still, Americans have some $770 billion in credit card debt.

But there’s a way that anyone carrying balances on multiple credit cards can take a bigger bite out of that debt each month. In other words, you could be paying your credit card bill all wrong.

Here’s a Better Way To Pay Your Credit Card Bills

If you take the time to look at your paper credit card statements, you’ll see a box. That’s where you’ll find your annual percentage rate (APR) and interest charge. Those figures will clearly tell you what the bank is charging you for your outstanding debt.

The best case scenario is to avoid interest charges altogether by paying off your card in full every month, but if that’s not possible, here’s how to avoid one of the worst credit card mistakes people make.

Try Using the Ladder Method To Pay Your Credit Card Bills

Money expert Clark Howard says that most people who have multiple credit cards will just pay more toward one of them almost haphazardly. But if you take a look at the interest rates for each card, you can see where the lion’s share of your money should be going.

If you have one credit card with a $5,000 balance and an interest rate of 21% and another with a $7,100 balance and an interest rate of just 7%, which one should you pay down first?

“If one is 7% and one is 21%, then the 21% is the one you should be paying,” Clark says. The reason is that you’re paying way more in monthly fees for the card with the higher interest rate even though the balance on the other card is much bigger. Paying off the card with the higher rate first will actually allow you to keep more of your money over the long term.

What we just described is a process called “laddering,” and it’s discussed in detail in our guide to paying off credit card debt

“Pay more money toward that credit card and slightly less toward the other cards until the card with highest-interest debt has a zero balance,” Clark writes in the guide. “Then you move onto the next card, and so on and so on.”

If you apply this strategy to your debt, you’ll not only be using your money wisely, but you’ll end up saving some as well.


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