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I need help on getting started


I need help on getting started. I have lots of cc debt and am trying to set up a payback system. I think I read somewhere that you can call the credit card companies to close the account and they will lower your interest rates, etc. is this true? Would you pay the smaller balance cards first or start with the higher interest rates? I don’t know where to start.

From what I have read many times, to start a debt management system on your own, you should first stop using your cards. Don’t close the credit cards because this can cause damage to your credit score. Call the credit card companies to discuss giving you a lower interest rate. I have also read different opinions about what debt to begin paying off first. Many say pay off the debt with the highest interest rate.

Recently have be reading that you should prioritize your debts from the lowest to the highest. And begin paying off the debt with the lowest balance. Once that debt is paid off, begin paying of the next smallest balance and so on. This method is called “snowballing” according to Dave Ramsey. Although paying of the debt with the highest interest rate may sound more logical, getting the smaller balances paid off does something to the psyche and gives you motivation and confidence to pay off the rest. Please visit DaveRamsey.com for a more thorough explanation of this concept.

Closing your accounts will not lower your interest rate, but you can call each creditor and ask for a lower rate. Closing accounts too fast will lower your FICO score because your debt to income ration will be turned upside down.

The way to pay it off depends on you. Some people like the emotional high of seeing an account paid off so those people pay off smallest debts first, pay minimums on all others. Once that is paid off, you take the extra money from the first account and pay off the next smallest debt, etc, creating a snowball effect (a la Dave Ramsey).

I pay my higher interest cards first (a la Suze Orman). Most of my accounts are at 5.9 or less now because I am the balance transfer fanatic. My only high card is my Discover at 13%, which I will pay off this month. I get my emotional high at the end of each quarter, when I list all my ending balances for that quarter and see how much less it is than the previous quarter. This past quarter was more than the previous one because we just bought a house.

I would list my accounts, the amounts and interest rates, try and get some of them reduced and then see if you would feel better doing it higher interest first or snowballing it.

Dave Ramsey has a good system, he says you need to budget for the essentials (food, housing etc) and anything extra you have after paying all that, you attack the smallest debt with all that you have. Once that is paid, attack the next smallest, and so on.

My soon to be ex and I had been following this plan right before our split and it was working great. I especially liked the budgeting part of it, because that forced us to not spend freely on things like going out to eat, so that saved us a lot of money.