Credit Card Debt Management Strategies
Discover proven methods to tackle credit card debt and reduce interest payments.
How It Works
- List all your debts from highest to lowest interest rate
- Make minimum payments on all debts
- Put extra money toward the highest-interest debt
- Once the highest-interest debt is paid off, move to the next highest
- Continue until all debts are paid off
Benefits
- Minimizes total interest paid
- Mathematically optimal approach
- Faster path to debt freedom
- Works well for disciplined individuals
Example Scenario
Credit Card A
$5,000
22.99% APR
Pay this first
Credit Card B
$8,000
18.99% APR
Pay this second
Personal Loan
$10,000
12.99% APR
Pay this third
Understanding Credit Card Interest
Learn how credit card interest works and why minimum payments can keep you in debt for years.
How Credit Card Interest Is Calculated
Credit card companies typically calculate interest using a daily periodic rate, which is your annual percentage rate (APR) divided by 365 or 360 days.
The Formula
Daily Periodic Rate = APR ÷ 365 (or 360)
Interest Charge = Average Daily Balance × Daily Periodic Rate × Days in Billing Cycle
Example:
$5,000 balance at 18.99% APR for 30 days = $77.96 in monthly interest
Most credit cards compound interest daily, which means interest is calculated on both your principal balance and any previously accrued interest.
The Minimum Payment Trap
Making only minimum payments can keep you in debt for decades and cost you thousands in interest.
Minimum Payment Example
By increasing your payment to just $200 per month, you could pay off the same debt in 2 years and 11 months, saving over $9,000 in interest.
Explore Credit Card Topics
Dive deeper into specific credit card topics to expand your knowledge.
Learn how balance transfer offers work, how to compare offers, and strategies to maximize your savings while avoiding common pitfalls.
Discover what factors determine your interest rate, how to negotiate with credit card companies, and strategies to qualify for better rates.