Step 5: Which Credit Cards Do I Pay Off First? Monthly Payment Formula - 2

We outlined a popular monthly payment formula on the previous page. There are two other creative payment solutions we would like to offer you.

Pay off credit card debt

Monthly Payment Formula 2 -
Pay Out Smallest Amounts Owed First

On the previous page, we asked you to list out all of your credit cards along with each card's current balance owing, and minimum payment amount. You also calculated the months to total pay out (MTP) by dividing the total balance due by the minimum payment. That figure tells you exactly how many months it will take you to pay off that card in full by making just the monthly payments.

In this method it is recommended that you pay off your cards not by the highest interest rate first, but by the smallest MTP (Months to Total Payout) to the largest. In other words, pay off the card that can be paid out most quickly first.

For example, if you have a card with a balance of $500 and a monthly minimum payment of $50, that card will take 10 months to pay off by making just your minimum payment each month. That gives it an MTP of 10. Calculate this number for each of your cards and order them with the lowest MTP at the top. That is the card that will take the least amount of time to pay off.

So the monthly payment formula for this method works like this: Pay minimum amounts on all cards except the one at the top. Take the extra amount of money you found to add to your payments in Step 3 and add it to the card that you are trying to pay off first (with the smallest MTP).

The reasoning behind this method is that it is best to get a few of the smaller balance cards paid off first, regardless of how much the interest rate is on that card. That way you give yourself a much needed and deserved sense of accomplishment for what you have achieved. Plus, the faster any of your credit cards are paid off, the faster your credit score will begin to improve.

This is a very effective method of eliminating your credit card debt and is one of our favorite creative payment solutions. We have another solution to offer you as well, one that combines these two solutions into an even more effective debt elimination plan.

Here is our Debt Ditch monthly payment formula for debt and financial management planning. 


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