One of the biggest reasons why Americans file for bankruptcy is due to credit card debt. This kind of debt can build up quickly and can be difficult to pay off, as the average balance for credit card debt is around $16,000. Those with credit card debt could consider filing for bankruptcy, but first may be able to create an effective plan in which they are able to pay off their debt.
The first step in creating a plan to pay off debt should be figuring out what to pay off first. Many believe that paying off the balance with the highest interest rate, before anything else, makes the most sense. This is due to the fact that one could avoid paying more in interest charges, if they were to pay off that balance more quickly.
However, some think that paying off the smallest balance first will help boost the motivation needed to continue paying off debt. In addition to the psychological benefit, paying off the smallest balance first could open up the opportunity to move a larger balance to the card with a lower interest rate. This could prevent against a climbing interest rate, if the person in question were able to pay off the debt before the card’s low interest rate period ended.
After figuring out which balance to pay off first, those with credit card debt should create a budget plan and stick to it. In doing so, they can ensure that they are setting money aside each month, in order to put towards their unpaid balances. Lastly, that person should make sure that they have one card they are able to pay off, in-full, every month. This will teach discipline and budgeting, and help boost their credit score. Anyone in New Jersey who has tried to pay off their credit card balance but has been unable to do so may benefit from speaking with a bankruptcy law attorney.
Source: CNBC, “Which Balance Should You Pay Off First?” Landon Dowdy, September 1, 2015