High credit card balances may feel overwhelming and impossible to manage. A study by the Harvard Business School found that consumers may remain in debt because they focus on outstanding balances. Researchers believe that viewing the total amount of debt may cause you to forget what you bought.
As reported by CreditCards.com, Harvard researchers considered whether cardholders lose motivation to pay down balances fast enough to make a difference. Sending small payments each month may appear fruitless when it does not appear to lower the total amount of debt. Prioritizing payments, however, could result in paying off one card that could bring some relief.
How does the payment-by-purchase strategy work?
Consumers often read their monthly billing statements and send minimum payments. Other cardholders may prefer prioritizing paying down the accounts with the highest interest rate. With multiple credit cards, however, you may end up short on cash and lose motivation to make larger payments.
Instead of making minimum payments, researchers suggest paying off a single item purchased. Buying items and then paying each one off individually may motivate you to pay down your card’s balance. Experiencing frequent feelings of accomplishment may help you reach your financial goals.
How may a balance transfer offer relief?
If you find the payment-by-purchase strategy easier to manage, you may continue following it until paying off one card. As noted by CNBC, you may also consider a balance transfer, which allows you to move your balances to one card. Many individuals transfer balances from high-interest accounts to a low-interest card. You could then pay down that card using the payment-by-purchase method.
Prioritizing payments based on the items purchased could help you remain motivated to pay down your debt. After paying off one credit card, you may transfer balances from other cards and merge them into one monthly payment.