Many of us want to pay down credit card debt. Getting rid of debt is empowering, providing a strong emotion boost, as well as relief from the anxiety that comes with being burdened by debt. Plus, when you are free of credit card debt, you have more money to spend on other things -- things that might be more important to you. When you pay off credit card debt, there's a lot going on emotionally.
Emotional Support for Debt Paydown: Start with the Lowest Balance
Many people have a hard time when it comes to debt repayment plans. It makes financial sense to pay off the debt with the highest interest rate first, but many people still choose to pay off the debt with the smallest balance first. This is because tackling the highest interest rate debt can get things off to a slow start. The balance may not go down as fast. Starting with the smallest debt first can help you see changes more readily, and that can provide you with a true emotional boost -- one that can help you stay on track with your plan.
Rewarding yourself when you pay off a credit card loan can be a good move as well. It can be hard to be always saying no to yourself as you work to pay down your debt. Budgeting in a small and simple treat when you pay off a credit card loan can provide you with a little celebratory boost as you move on to the next debt on your list.
Refrain from Hurting Your Score
As you enjoy the thrill of successfully paying off a credit card loan, you need to make sure that you don't hurt your Canadian credit score by canceling your credit account. Canceling a credit card can lower your debt utilization, and that can hurt your credit score. Instead, put the credit card away -- in a place where it will be difficult to obtain and use. Then you can watch your credit score improve, since you have less debt. Remember, though, that it can take 30 to 90 days for your credit score to show real improvement as you pay down your debt.
The Reality of Emotion and Credit Card Debt
It's true that paying of the highest interest credit card first is the "smart" play financially. And if you can manage to power through some of the disappointment that comes with the slow initial pay down pace of starting with the highest interest card, you will save money. However, if you need the emotional boost that comes with paying off a credit card loan quickly to quick start your debt repayment plan, then starting with the small loan can be the smart play for you. It all comes down to preference, and your money personality. Make sure you take that into account; the most important thing about debt repayment is that you stick with it.
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This post was included in the Carnival of Personal Finance at Stupid Cents.