Q: I have two credit-card balances that I'm trying to pay off. You suggest targeting the smallest debt first and then combining that payment with the minimum payment on the other one, thus paying the larger one off faster.
My smaller credit-card debt has an interest rate of 1.99 percent which I negotiated for the entire balance as long as it takes to pay off. The larger credit card has several layers of interest rates which average about 10 percent. Wouldn't it be better to pay off the larger debt at the high interest rate first, and then pay off the smaller one?
A: By targeting the shortest debt first the Rapid Debt-Repayment Plan addresses the mathematical aspects of rapidly repaying debt and also fulfills the need many of us have for frequent emotional payoffs when tackling something difficult. Of course, this is more dramatic when a person has a greater number of debts than you.
I suggest you use the RDRP Calculator (an online member benefit) at DebtProofLiving.com and figure your payoff plan both ways--allowing the calculator to determine the pay off order and then a second time using the manual override to put your largest debt in the first position.
Compare the two scenarios then choose the method that's right for you. What really matters here is that you kick your repayment efforts into high gear.
By the way, that 1.99 percent interest? Don't get too used to it. Regardless what they "promised," the fine print in your contract is the ruling authority. They can (and they will, trust me) change the terms any time for any reason. Get ready for them to jack that rate to 15.99 or more.
I know I must sound like a broken record, but I will say it again: You need to do whatever it takes to pay these credit-card debts as quickly as possible. You cannot afford what's coming if you delay.
Excerpted from Can I Pay My Credit Card Bill with a Credit Card? And Other Financial Questions We're Too Embarrassed to Ask! (DPL Press, Inc., 2009)
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