If your credit card debt has you anxious and worried, we have good news. There are some tried-and-true ways to quickly pay off your credit card debt and relieve yourself of the burden of high interest rates, while also improving your overall financial health.
While there aren’t really any instant fixes (unless you win the lottery or have a rich uncle), there are lots of ways you can minimize the damage that credit card debt can cause to your financial well-being. The last thing you want to do, though, is ignore it. And spending several years paying your minimum balances while hoping to get ahead isn’t any better. That’s because credit card interest adds up quickly.
Most credit card issuers charge between 1% and 2% of your total balance as your minimum payment each month. So, if you’re carrying $10,000 in credit card debt from month to month, you’ll need to pay $100 or $200 each month just to keep your account in good standing.
That does nothing, however, to bring down your balance, which continues to rack up interest. With a 16.99% annual percentage rate, you’ll need to make payments of $242 each month for more than five years to pay off your debt. That totals $15,147 in total payments, or 34% interest on your $10,000 debt. And that’s if you never add any debt to that amount or incur any late charges.
So how do you get out from under the burden of your credit card debt? Here are some helpful tips for how you can break the cycle and become debt-free.
Just like you need directions to your destination when you’re driving someplace you’ve never been, you need a plan for getting rid of your debt, and that requires having all of your money movements written down in one place. Yes, we’re talking about a budget. Once your budget is in place and you know what your income and outgo look like, you can easily see any areas where you might save a bit of money. Is it time to get rid of your cable bill? Can you reduce your phone plan? Do you need that magazine subscription? Any extra money you can find in this way can be applied to helping you pay down your debt.
Once you’ve figured out the above, it’s time to think about your credit cards. You can write down all your credit card information on another page or in a separate spreadsheet. It’s a good idea to know how much your balance is on each card, plus the limit, your interest rate and your monthly minimum payments. This will help give you a clearer understanding of your debt, and can help you determine which card(s) are making you struggle the most.
Formulate a Plan
There are a few ways you can go about the process of paying down your debt. Here are four methods for doing that.
The Debt Snowball
In a nutshell, the debt snowball method lets you focus on paying off one debt as quickly as possible while making minimum payments on your other debts. If you’re the kind of person who responds well to quick successes, then this may be a good approach for you.
The Debt Avalanche
The second possible approach is the debt avalanche. In this method, you pay down your credit card with the highest interest rate first. This approach helps you save money in the long run by shaving off interest payments more quickly. You won’t see results as quickly, but it can be better for your bottom line.
Transfer Your Balance
Another option for paying down your debt more quickly is to transfer your credit balances to a credit card that offers a 0% introductory APR for balance transfers. While most of these cards charge a transfer fee (typically between 2% and 5% of the balance transferred), you’ll be charged absolutely no interest for a pre-set period of time. Most balance transfer cards offer this introductory APR for between 12 and 15 months, but some are available for as long as 18 or even 21 months.
It’s important to remember, though, that this card is not for racking up new charges. Your goal should be to pay off the entire balance by the time the introductory APR ends.
Some things to consider when choosing a balance transfer card:
– How long the introductory 0% APR lasts
– Whether that APR is just for balance transfers or also new purchases
– What the APR will be after the introductory rate expires
– Any balance transfer fees
Take a Personal Loan
Personal loans, sometimes called debt-consolidation loans, can be a great option for people who like the idea of making one payment each month instead of keeping track of several. These personal loans allow borrowers to make a set monthly payment at a certain interest rate with a hard date for paying it off. However, that payment is set in stone, so if you’re worried about cash flow, keep in mind there’s no lesser, minimum-payment option like with a credit card.
You can learn more about reducing your monthly expenses, increasing your income and implementing debt-payoff strategies in our post, How to Pay Off Debt.
[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]