Pay off your credit card debts the right way

Most customers are keen on reducing paying off all their outstanding dues on credit cards and reduce their overall debts. However, most of them are not aware of the right way to go about the entire process. The fact that customers do not prioritize their debts is the major flaw though their intentions are right.

According to one of the most recent surveys conducted, customers tend to pay off their smaller balances first without giving a thought to the interest rates. In fact, customers should classify their debts based on the interest rates so they can clear off the ones that attract higher financial charges. Not focusing on the debts with the highest interest rates will prove to be costly in the long run. It is always better to understand how to tackle debt the right way.

Scott Rick from the University of Michigan, who is a marketing professor, said that there are emotional benefits as well involved when we close a credit account. It does feel good to reduce debt, irrespective of the amount involved. Some financial experts also recommend customers to clear off their lowest debt at the onset. However, this does not necessarily work in the favor of customers. In the present scenario where every dollar is hard to come by, we have to ensure we spend it wisely to eliminate debt and save up for a rainy day. He says that when people have a number of debts to clear off, they tend to eliminate the number of debts and not the total outstanding due.

According to him, understanding how people use credit cards involves a lot of research and not much is known about debt management in people. He also went on to add that customers were still not completely aware about the impact of the interest rates on their cards and how it can compound their woes. As per the Credit Card Accountability, Responsibility and Disclosure Act of 2009, credit card lenders have to provide customers with the details of how long it would take for them to clear off their entire debt if they only paid the minimums each month. Another step that is in the pipeline is the simplification of the terms and conditions related to credit cards and their usage so even a layman can interpret it easily. He said that in addition to the outstanding dues, the rate of interest should also be large and highlighted in bold.