Buy Like Buffett: Three Reasons to Pay Off Credit Card Debt

What's the number one debt that most Americans have? The answer is too much debt. Debt does not discriminate. It plagues the lives of countless American from teenagers to senior citizens. Everyone is always trying to come up with strategies to pay off their debts. People are left wondering where to start. Should they pay off their auto loan, credit card debt or student loans first?

Here are 3 reasons to pay down your credit card debt.

1. Improving your credit score.
   
   Paying off your credit card will give a bump to your credit score. Did you know that having at least 70% of your credit available will actually increase your credit score? Your credit score is based largely on your available credit and how much of it you are using. It doesn't even matter if you are paying on time or not. Every account that you have that is close to the credit limit is actually hurting your credit score. Having lots of available credit that you do not use will actually boost your Fico score.


2. Get a double-digit return on your money.
   
   Although interest rates are down on savings accounts and bonds, they are increasing in one place: Credit card interest rates are actually rising. Credit card loans are notorious for having the worst interest rates of any major loan products. The average interest rate on a credit card is now up to 14.7%. This is the absolute worst time to squeeze customers that are already burdened by too much debt. There has never been a better time to get out of credit card debt. Do you want to know how to maximize your investment returns? By eliminating a debt that is charging you double-digit interest, you are actually getting a double-digit return on your money.


3. Increase your credit limit.
   
   Have you ever tried to get your credit card company to give you a credit increase? Getting a credit increase can be an agonizing process. Card companies perform a review of your account and determine if your current usage qualifies you for one. This process can take several days. You can guarantee yourself of a credit increase by paying off your balance in full. Individuals that do not use credit will receive even more of it. It may not make sense, but it's true.

Are you currently carrying credit card debt? What steps have you taken to reduce it?

Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.