How to efficiently pay off credit card debt is almost as simple as racking up consumer debt. However, this information isn't as readily available to the public. No one really knows...until now.
Sure, credit card balance transfers, credit card cash advances, and negotiating credit card debt could help, but eventually, that debt still has to be paid off. This may be your best credit card debt help that could save you time and cash.
For years, we have been preached to pay off your credit cards using different strategies:
Which is correct in how to pay off credit card debt? What happens when one card has the lowest interest rate but the highest minimum payment?
Our suggestion scraps the interest rate and lowest minimum payment strategies. We promote paying off your credit card debt using a calculation that determines the highest efficiency for your dollar.
It's called DOLP, Dead on Last Payment. It's a method that was coined by popular financial pundit David Bach.
Here's the strategy:
Here's an example
Let's say you have 3 credit card balances.
|Type||Balance||Minimum Payment||Interest Rate||DOLP|
As you can see from the above example, the American Express credit card has a higher minimum payment than the VISA but a lower DOLP number.
Notice the interest rates in red. I added them here to show you that they are irrelevant. Bank and lending institutions have fooled us into focusing too much on interest rates.
We have created a free online credit card debt calculator for our readers. Gather your debts, enter them in, and the DOLP number will automatically be generated. Our calculator will automatically sort your debts in pay off order.
The American Express credit card should be the first card to pay off. Theoretically, every $100 you paid down in principal, it will free up $1 of cash flow.
Think of it this way. If all things stayed the same, it would take 130 payments of the minimum payment in order to pay off the entire balance, freeing up cash flow quicker.
It will be more efficient for you to attack the card with the lowest DOLP number even though the Mastercard has the lowest balance. Once you pay off the American Express credit card, take that monthly payment and apply it on top of the Visa monthly payment. This creates your snowball effect.
Although interest rates play a role, we don't factor it into the equation. You should always work to get your interest rates on your credit card as low as possible anyway.
You now know the most efficient way to pay off credit card debt. DOLP your way to eliminating credit card debt.
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