Say you have four credit cards, three of them will balances of $200 or less and one with a balance of $3500. All four of these cards have similar interest rates. Further, imagine that you have $1500 available to you to pay down your consumer debt. What is the best approach? Individual different financial advisors are likely to give you one of several options available. There is also another option that allows you to keep your $1500. Let\’s discuss the pros and cons of each approach.

The first financial advisor will tell you to pay off the lowest balance and work your way up from there. The benefit of this approach is that you will likely feel energized by paying off your balance and will be more likely to carry your momentum forward. Another benefit is that you will have less bills to worry about, and therefore will be less likely to miss or make late payments. However, this approach will not work if you have the type of personality that is motivated by this type of progress.

The second option is to pay off the card with the highest interest rate first and go down from there. This approach offers you the biggest \”bang for your buck.\” However, if all your cards have identical interest rates this approach is probably not the best one for you as you\’re not going to save any money in the long run.

The third option is to pay off your debt strategically. You should be using 30 percent or less of the available balance of any card at any given time. Paying off your cards so that they are below this limit has significant advantages for your credit score. However, if your cards have equally high limits this approach does not provide any significant advantage to you as a consumer.

The final option we\’ll discuss here is the possibility of getting a home equity loan.

If you own your home and have built some equity in it through paying down your mortgage, there is a significant advantage to this approach. You are likely trading a high interest rate in your credit cards for a lower interest rate in your home equity loan. Another advantage to this approach is that you can itemize your home equity loan on your taxes, giving you a bigger return.

Overall, the success of any of these approaches depends on a variety of factors. The details of your debts, your personality, and more. Regardless of the option you choose it is critical that you remember a few things. First, try to avoid paying only the minimum amount due each month. This only prolongs your debt agony and gives an advantage to the financial institution you are borrowing from. It\’s also important to develop a strategy, either on your own or with the help of a financial advisor, to keep yourself from getting into this situation again. You certainly do not want all your hard work to be for nothing.

Are you looking for more information regarding debt? Visit http://www.thecreditjourney.com today!

Are you looking for more information regarding debt? Visit http://www.thecreditjourney.com today!

Author Bio: Are you looking for more information regarding debt? Visit http://www.thecreditjourney.com today!

Category: Finances
Keywords: interest rates,interest rate