US Financial Management, Inc.

Credit card companies generally determine the minimum payment to be 2 - 2.5% of your outstanding balance. So if you owe $1,000, for example, your minimum payment will be $20 - $25 per month. Some part of that $25 goes to the interest on the balance, while some goes to pay off the actual balance. How much goes where depends on the interest rate on your account. Your credit card statement will give you the exact numbers.

Let's say that $20 of the $25 goes to the actual balance. To pay off $1,000 at $20 per month will take 50 months. Just over four years. You'll also have paid $250 in interest alone.

So how do you actually pay them all off?

Look at the interest rates on all your credit cards. Take the one with the highest rate. That's the one you're going to work on first and we'll call it card #1.

After examining your spending you may have found some money to put towards your payments. All of this extra money to pay off your card debt goes to this one card. The idea is to pay as much extra to card #1 as you can. Until it's paid off.

Pay the minimum balances on all the other cards until card #1 is done.

Then take the card with the next highest interest rate and add to its payment the total of the payment you were making to card #1. In other words, send the regular monthly payment you used to send for card #1, plus any additional amounts that you used to pay on card #1, plus the monthly minimum for card #2- all to card #2. Do this until card #2 is done.

Then take the total you were paying to cards #1 and #2 and add that to the payment on card #3, and so on.

Here's an example:

Let's say you have four maxed out, credit cards. Each card has a balance of $5,000 ($20,000 total.) Say the minimum payment on each card is $100 (yours may be different) making your monthly minimum payment total $400. Now let's say you have $500 per month to pay these off, which you found through analyzing all of your spending.

Card #1 has the highest interest rate. Send $200 per month to card #1, and pay the minimums ($100) on each of the others. The extra $100 you're sending in to card #1 goes to the actual balance of the card, not the interest. This will let you pay that card off a lot faster. You might be able to totally pay off this card in two years, instead of five.

Eventually, the debt on card #1 is entirely paid. The entire payment, $200, that you were making to card #1 gets added to the payment on card #2, for $300 total. ($100 minimum plus the extra $200 from card #1.)

The balance on card #2 will be less than $5,000 since you've been making your minimum payments all along. Adding the $200 from card #1 to the payment of $100 that you've been making to card #2 will make this card go away much faster than the first card did.

When card #2 is gone you take the $300 per month that you were paying to #1 and #2 and add it to the payment on #3, which will now be $400 per month. When #3 is done you repeat the procedure for card #4, but now, you're sending the whole $500/month to that one card.

Obviously this system will take years, but at the end of that time you will have four paid off cards (which you hopefully cut up), spending and budgeting discipline earned from going through the whole process, and $500 a month to put into a savings account or where ever.