Paying Off Outstanding Credit Card Balances

It’s time to start making changes to live a healthier lifestyle. While many focus on diet and exercise, it’s important to also consider decisions that pertain to the health of your personal finances. Reducing outstanding credit card balances is a starting point for getting your finances in tip-top shape.

What is an outstanding balance?

It is the amount of money you owe on your credit card, including accumulated interest and new purchases. Your monthly payment is credited toward your outstanding balance. If you make only the minimum payment, however, most of your money will go toward the finance charges without greatly reducing the principal balance. Credit card companies are required to notify consumers in writing on each billing statement the number of months and the total cost (including principal and interest) involved in repaying the current balance if only the required minimum monthly payments are made. This information must include what the monthly payment must be to pay off the current balance in 36 months.

What is the best strategy for paying off your outstanding balance?

There are several strategies for keeping your credit card debt under control and eliminating the balance. Some of these are:

  • Lump-sum payoff: You may receive windfall, such as an inheritance, an employment bonus, or if you’re lucky, lottery winnings. You can use this money to pay off your credit card debt. This is typically a better use for your windfall money than investing it, since you’d need an investment with an after-tax rate of return of at least 18% to cover the cost of your credit card debt, in many cases.
  • Prioritizing repayment: The next best strategy is to stop using your credit cards and put as much money as possible toward reducing your credit card debt. You can rank the cards according to their interest rates and then systematically pay off your debt, sending the largest payment possible to the most expensive card. Make sure this payment exceeds the required minimum payment, since every additional dollar you pay decreases the amount of interest charged on your balance. Continue making just the minimum payment on your other cards until the most expensive card is paid off, then focus your repayment efforts on the next most expensive card.
  • Balance transfer: You can use credit cards with lower rates to pay off the higher rate cards. The money you’ve saved in interest can then be applied to your outstanding balance. The next time you’re offered a lower rate credit card, read the conditions. If the new card’s credit limit is high enough to pay off the older, more expensive card, make the transfer.
How fast do credit card companies have to process your payment?

The credit card company has to credit your account the day it receives your payment, provided you’ve followed proper payment procedures. (If the payment due date falls on a weekend or holiday, the credit card company must credit your payment on the next business day without penalty.) If you haven’t signed your check or have transposed two numbers on your account, your payment may not be credited as quickly.

Don’t hold on to cards you’re not using

You may think it’s a good idea to have lots of available credit, just in case you ever need it. But from a lender’s point of view, lots of available credit means lots of potential trouble. The more credit you have available, the greater the chances you’ll get in over your head. Even if you never use the cards, open credit accounts can damage your chances of getting a mortgage or other loan in the future. Proper card use demands that you cut up cards you don’t want, return them to the issuer, and not accept renewal cards you don’t plan to use.

For information on ways you can invest your money, and make it work for you, contact Scott Brady here or call at 248.443.4234.


Advisory Services offered through Capital Asset Advisory Services (CAAS), a Registered Investment Advisor. The investment and insurance products recommended, offered or sold through Capital Asset Advisory Services and its representatives:

  • Are not Credit Union shares or deposits,
  • Are not federally-insured by the National Credit Union Share Insurance Fund,
  • Are not obligations of or guaranteed by the Credit Union,
  • Involve investment risks, including possible loss of principal.

Capital Asset Advisory Services is not affiliated with Michigan First Credit Union or Michigan First Wealth Management Group.

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