How Much of My Credit Card Should I Pay Per Month?
Transcript: How Much of My Credit Card Should I Pay Per Month?
So you just got your credit card statement in the mail and it shows minimum balance due and how long it's going to take you if you just pay the minimum balance. And typically you'll see 20, 25, 30 years to pay off whatever that balance based upon the minimum balance due. So let's look at this two different ways. The first way, this is the only credit card that I have a balance on and I want to pay it off. And the second way is I have multiple credit cards, and how do I pay this off, and how much should I put toward each monthly payment. So in the first scenario, this is your only card. Well, let's really strip down and look at a budget, because the main primary objective is let's pay this off as quickly as possible. The minimum payment can reach out to, like I said, decades before it's completely paid off. So what can we fairly attribute to each monthly payment to bring that balance down to zero? Even if you want to take additional resources and pay toward it, really determine what the pros and cons of that are, and try and get that balance down to zero, because that's going to be very important in terms of how you're going to start growing other aspects within your life. Now if we look at multiple credit cards, sometimes it's, "Well, which one do I pay off
and how much do I pay for each particular one?" And typically what we'll do is we'll take a laddering approach. And in a laddering approach, we're going to give you a little homework and we'll say, "Okay, let's get every statement and let's sit down with a piece of paper," and we'll make three columns. The first column is going to be what's my total balance due. The second is what's my minimum monthly due. And the third one is going to be the APR attributed to that particular credit card. And after you list them out, then let's put the highest APR at the top, lowest APR at the bottom. And it really doesn't matter what the balance is. We're really focusing on the APR. Now we're going to take the ladder approach. The ladder approach is going to say, "Here's the total amount that I have to paying off credit cards." Now given that total amount, we're going to pay the minimum on the lowest APR statements, and whatever's leftover, we're going to put toward the maximum APR statement. And then we're going to continue to bring that down to zero. Once that's down to zero, we move down to the next credit card, then down to the next, then down to the next. We want to systematically bring down and take away that credit debt without having to pay out too much interest to the institutions that are lending you the money. HOST: Robert J Mascia, CFBSCertified in Business Succession Planningwww.greenridgegroupllc.com Music by iStockSource: credit.about.com