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Pay Down Credit

A corollary to setting a budget, paying down your credit has some of the most tangible and immediate benefits of all the financial actions you can take.  Why?   Because credit card debt has some of the highest interest rates you will ever face, surpassed virtually only by payday lending.  Furthermore, the constriction of the credit and loan markets is making these interest rates even higher than usual.

To get out of credit card debt, there are 3 basic techniques:

1. Prioritize credit payments – In your budget, make paying down your credit cards among your highest priorities, just below rent, food, medical expenses, and necessary transportation. Within Maslow’s Hierarchy of Needs, paying down credit fits into the “Security Needs” category, which is surpassed only by your physiological needs.
2. Delay “want” purchases – What’s the first large purchase most college graduates make right after graduation?   A car.   And the two largest small- scale discretionary expenses?  Eating out and happy hours.   Instead of getting a car, consider signing up for ZipCar or the other city car shares available.   Pack a lunch.   And look for those happy hour specials.
3. Utilize the lowest interest available – If you have multiple credit lines, pay down the card with the highest interest rate first.   If you have transfer options available that do not involve transfer fees, then do that.   And opening a line of credit does not hurt your credit score in the long run, so if you have access to a new line of credit that has a lower interest rate than your existing lines of credit and can transfer your balances to that one, do it!

Chaperone Assist ⇒ Your Student Loan Chaperone can give you optimized credit payment plans for your in-grace and in-repayment periods, and Mint.com can help you with this as well.

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