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Here's an example:
Let's say you have four, maxed out, credit cards. Each with a balance of $5,000 ($20,000 total.)
Say minimum payment on each card is $100 (yours may be different) making your monthly minimum payment total $400.
Now let's say you have $500 per month to pay these off, which you found through analyzing all your spending.
Card #1 has highest interest rate and you'll send $200 per month to that card and pay minimums ($100) on each of others.
And you're not adding any new spending.
The extra $100 you're sending in to card #1 goes to actual balance of card, not interest. This will let you pay that card off a lot faster. You might be able to kill this card in two years, instead of 5.
Eventually, card #1 is dead. The entire payment, $200, that you were making to card #1 gets added to payment on card #2, for $300 total. ($100 minimum plus extra $200 from card #1.)
The balance on card #2 will be less than $5,000 since you've been making your minimum payments all along. Adding $200 from card #1 to payment of $100 that you've been making to card #2 will make this card go away much faster than first card did.
When card #2 is gone you take $300 per month that you were paying to #1 and #2 and add it to payment on #3, which will now be $400/month.
When #3 is done you repeat procedure for card #4, but now you're sending whole $500/month to that one card.
Obviously this system will take years, but at end of that time you have:
* Four dead cards (hopefully you cut most of them up,) * Spending and budgeting discipline earned from going through whole process, and * $500/month to put into a savings account or where ever.
Written by Greg Mee. For more help on handling credit card debt visit http://www.1-credit-card-debt.com