Let’s say you’ve decided to spend an extra $300 each month to repay your debts. Using the previous example, you should start with the Macy's account because it has the highest interest rate.
- Macy’s credit card, $1515, $89, 18.9%
- Visa credit card, $780, $47, 11.9%
- Bank of America loan, $900, $55, 7.8%
Each month, make a payment of $389 ($300 plus the minimum payment) until the debt has been repaid. Even though your minimum payment will decrease as you pay off the balance, continue sending $389. The same goes for your other debts, too.
Using the example from above, your plan will look something like this:- Macy’s: $389
- Visa: $47
- Bank of America: $55
Once you have repaid Macy’s you should repay Visa, the account with the next highest interest rate. Your payment should be $436, the $389 you were paying to Macy's plus the $47 you were already paying to Visa. Update your plan.
- Visa: $436
- Bank of America: $55
Finally, when you have repaid the Visa account, use all $491 to repay the Bank of America loan.
