How to Pay off Credit Card Debt

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:

  • Highest Interest Rate

    This makes sense right? Why pay all that extra interest? Attack the credit cards in order of interest rate, paying off the highest first. Paying interest creates a lost opportunity cost, an eroding factor of money.

    We've been taught to focus on the interest rate by the banks. Banks may be the reason why this is such a popular strategy. It has you asking yourself, "How do banks make money?"

  • Lowest Minimum Payment

    This makes sense right? Attack the credit cards in order of minimum payment, paying off the lowest first.

    This will help you make take baby steps and allow you to congratulate yourself as you pay off each card. Each pay off will gradually build your momentum in creating your own snowball effect and eliminate credit card debt legally.

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?

How to Reduce Credit Card Debt Efficiently

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:

  • Make a list of the current outstanding balances on each of your credit card accounts along with their minimum payments.
  • Divide each balance by the minimum payment that particular card company wants you to make. The result is that account's DOLP™ number.
  • Order the carda in reverse DOLP™ order, putting the account with the lowest number first.
  • Pay as much as you can each month toward the card with the lowest DOLP™ number. Make only the minimum payment on the other cards.

Here's an example

Let's say you have 3 credit card balances.

TypeBalanceMinimum PaymentInterest RateDOLP™
American Express1300010013.99%130
Visa100005010.99%200
Mastercard80001018.99%800

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.

Cash flow is Key

Free Online Credit Card Debt Calculator

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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