Daily Financial Challenge – Day 2

Welcome to day two of the Financial Challenge. Now that you have made calls to try and get your credit card interest rates lowered, the next step is to make sure that you have your credit card repayment plan in order. It makes sense to pay off your credit cards as quickly as possible so that you can stop paying interest to the credit card companies and begin paying interest to yourself.

When you’re in debt, the best investment you can make is paying off your credit card debt. First, the interest rate you are paying on the credit card debt is likely much higher than any return you can get from a standard investment. Secondly, there is absolutely no risk in getting the return — it’s 100% guaranteed. The question is how to get the best return when you have a number of credit cards.

While some recommend that you pay off the credit cards with the lowest balance first for “psychological reasons” by making it appear that you are paying off your debt quicker, this will actually cost you more money in the long run. Under this system, you take all your credit cards ordering them with lowest balance at the top (and fist to be paid off) to highest balance at the bottom (and to be paid off last). This is often referred to as “snowballing” your debt. You need to take a hard look at your personality and decide if this is the only way you think that you can reduce your credit card debt. If it is, then doing this method is better than doing nothing at all, but the main purpose of this Financial Challenge series is to get your finances in a healthy state as quickly as possible. To accomplish this, you want to pay off the credit card with the highest interest rate first (no matter what the balance) and that is the plan we’re going to set up today. This is referred to as “highest interest first snowballing.”

Visa Credit Card

Let’s say you have 7 credit cards.


Credit Card Amount Owed % Interest
Credit Card A $500 11%
Credit Card B $200 15%
Credit Card C $1500 18%
Credit Card D $750 5%
Credit Card E $2000 13%
Credit Card F $1200 22%
Credit Card G $1000 17%

You want to order these from highest interest rate to lowest interest rate as follows:


Credit Card Amount Owed % Interest Min. Payment
Credit Card F $1200 22% $48
Credit Card C $1500 18% $60
Credit Card G $1000 17% $40
Credit Card B $200 15% $8
Credit Card E $2000 13% $80
Credit Card A $500 11% $20
Credit Card D $750 5% $30

The first step is to determine the total minimum payments for all the cards. Adding the minimum payment for Credit Cards A ($20) + B ($15) + C ($60) + D ($30) + E ($80) + F ($48) + G ($40) = $293. This is the absolute minimum that you must pay toward your credit card debt each month.

Since Credit Card F has the largest interest rate and has been designated the first card to pay off, you default to the minimum payment on all the other cards. That means $245 will go to pay the minimum payment for Credit Cards A, B, C, D, E & G. For Credit Card F, you will pay the minimum payment ($48) + and extra $100 for a total of $148 each month for a total of $393 in credit card payments. Before you say that there is no way you can pay an extra $100 a month toward credit card debt, part of the Daily Financial Challenge will be to find that money and hopefully even more.


Credit Card Amount Owed % Interest Payments Months 1 – 8
Credit Card F $1200 22% $148
Credit Card C $1500 18% $60
Credit Card G $1000 17% $40
Credit Card B $200 15% $8
Credit Card E $2000 13% $80
Credit Card A $500 11% $20
Credit Card D $750 5% $30

By paying $148 each month toward Credit Card F, you will pay it off in approximately 8 months. In month 9 (with Credit Card F no longer an issue) you will make the minimum payment to Credit Cards A, B, D, E & G. You will also make the $60 minimum payment toward Credit Card C (which was number 2, but has moved to number 1 because Credit Card F is payed off) + the extra $100 + the $48 that was previously going to the minimum payment of Credit Card F for a total of $208. In this scenario you will not be paying any more than you were paying in months 1 through 8 – it is still the same $393 in total. By doing this you will pay off Credit Card C in approximately 7 months.


Credit Card Amount Owed % Interest Payments Months 9 – 15
Credit Card F $0 22% $0
Credit Card C $1500 18% $208
Credit Card G $1000 17% $40
Credit Card B $200 15% $8
Credit Card E $2000 13% $80
Credit Card A $500 11% $20
Credit Card D $750 5% $30

In month 16 you will pay the minimum toward Credit Cards A, B, D, E. Your will then pay the minimum payment of $40 toward Credit Card G (third on our list, but now number 1 since both Credit Cards F and C have been paid) + the extra $100 + the $48 that was previously going to the minimum payment of Credit Card F + the $60 that was previously going to the minimum payment of Credit Card C for a total of $248. Again, there will be no increase in the amount you pay each month toward credit card debt as it will remain $393.


Credit Card Amount Owed % Interest Payments Months 16 – 19
Credit Card F $0 22% $0
Credit Card C $0 18% $0
Credit Card G $1000 17% $248
Credit Card B $200 15% $8
Credit Card E $2000 13% $80
Credit Card A $500 11% $20
Credit Card D $750 5% $30

Once Credit Card G is paid off (in about 4 months) you continue to move down the list like we have been doing until all your credit card debt is paid off. Credit Card B can be paid of in its entirety and you can move onto Credit Card E. Of course, if you have other debts such as student loans, car loans or medical bills, these can all be placed into the system ordered by their interest rate. Once all your debt is paid off, you will take the money and use it to build your emergency saving and investing accounts.

In the time you have allotted for today’s Financial Challenge, make a list of your credit cards with the amount owed, the interest rate and your minimum payment (this can be found on your last credit card statement). Once you have this information, make a list and place it so that you can see it when you write your check for the credit card company (if you do the payment by automatic withdrawal from your bank account, you will have the amounts to set for each account).

That’s it for today. You now have your credit card debt reduction plan in place and know that it’s the quickest and most efficient way to pay off your credit card debt. If you want to see how long it’s projected to take, you can try out this snowball calculator and play around with the numbers (it requires Excel 7.0 or later).

NOTE: The entire challenge series is what I would do with my money and is merely my opinion. You should do thorough research and seek professional advice and decide to do what is best for you. My Disclaimer

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18 Responses to Daily Financial Challenge – Day 2

  1. Caitlin says:

    I think this is a great series and hopefully will help a lot of people. Nice job :)

  2. emanuel says:

    yes , definitely very helpful to those who are motivated to getting on top of their finances .

  3. dwallyfam says:

    I feel good. I had already worked this out

  4. sylvia says:

    good general information

  5. kelly says:

    Definately good advice…I do however think that a big part to succeeding in this chalange is to take your cash inflows and subtract your means (the bare minimum that you can live on), and make sure that you stay at or below this level if possible; using the remaining cash to put towards paying down your debt. This is my main goal currently.

    I enjoy your posts. Keep up the good work!

  6. mapgirl says:

    I didn’t know it till now, but I am participating!

  7. thundermouse says:

    Like a few responded to Challenge-Day 1, I don’t have credit card debt. Have never even applied for a credit card. However, I still find these challenges interesting to read and learn from. This is a total learning experience and some of these credit card tips can apply to different areas. Thank you for this site and approach. This is the sort of thing I needed to keep me motivated and on track.

  8. Tracy says:

    Is this good if your bills are so old they no longer have interest rates attached to them, only balances.

  9. pfadvice says:

    “Is this good if your bills are so old they no longer have interest rates attached to them, only balances.”

    I don’t know your exact situation with the balances with no interest, but just going on that I would pay off all the balances with interest first. While you can actually make more money by then placing the amount into savings and earning 4+%, you do have an obligation to pay back the debts if possible. Therefore I would begin paying them off on a monthly schedule just like above with those 0% accounts placed at the bottom of the list.

  10. Gloria says:

    This system seems like it will work but it also seems a bit complicated. My plan is to pay triple the amount I owe on each card a month. This will be easier now that I am earning more income and that I only have 3 credit cards. This plan has always worked for me and gotten me out of debt.

  11. pfadvice says:

    “This system seems like it will work but it also seems a bit complicated. My plan is to pay triple the amount I owe on each card a month. This will be easier now that I am earning more income and that I only have 3 credit cards. This plan has always worked for me and gotten me out of debt.

    No doubt that it will work – it will just take a bit longer for you to get out of debt and you’ll pay a bit more to the credit card companies. As with all things in personal finances and saving money, you know yourself best and what motivates you to keep going. If that system is the one that will get you out of debt – even is it is slightly slower – it is still far better than doing nothing at all.

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  13. You’ve actually UNDERSTATED the benefits of paying off your credit cards. Interest on credit cards is paid in after-tax dollars. So, avoiding a 12% credit card interest by paying down you balance is equivalent to earning a risk-free 12% return AFTER TAX.

  14. Angelpix24 says:

    I have one little 300 dollar limit credit card. I’ve learned my lesson and got rid of the rest of them. Is this series going to be about how to pay my credit card debt down?

  15. pfadvice says:

    “I have one little 300 dollar limit credit card. I’ve learned my lesson and got rid of the rest of them. Is this series going to be about how to pay my credit card debt down?

    Nope, it’s goingto be about all aspects of personal finances which happens to include credit cards

  16. Bill Halpin says:

    Hello. I like your site. I wanted to add one thing to your advice above. Most people who have balances are their credit cards continue to make new purchases on their cards. If the card they use has a balance, they are charged interest not only on the money they previously owed but also their new purchases. This is a avoidable rip-off.

    It is important that the new purchase are made on a card without a balance. (which of course is paid in full every month….)

    This avoids paying interest on your monthly purchases.

  17. poundwise says:

    Great advice and love the idea of this series. It should prove very beneficial.

    One caveat when paying the minimums, make sure that the minimum amount due is greater than, or at least equal to, the interest charged for the cycle. I have one card that routinely asks for a minimum payment that doesn’t even cover the interest.

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