How to Pay Off Credit Card Debt Fast
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Balance transfers can help you pay off credit card debt faster. Read on to learn how to shrink your balance and pay less interest.
How to Pay Off Credit Cards Quickly and Save Money
|How to Pay Off Credit Cards © CreditDonkey|
Credit card debt is not a fun topic. But it's okay, you're not the first person who has taken on more than they can handle.
Maybe you borrowed too much for a big purchase. Or maybe you just went on a few too many shopping sprees. Or perhaps you were in between jobs and got into a cash flow bind. No matter how you got here, the debt is a reality and the interest charges aren't going away any time soon.
When your credit cards have high interest rates, making a dent in what you owe can seem impossible. But it's not. It just takes is the right strategy and some dedication, even if you're on a tight budget.
If you're not sure where to get started, this step-by-step beginner's guide is here to help get you take the first step towards banishing your credit card balance for good.
Fastest Way to Get Out of Debt: Balance Transfer
This may seem counterproductive at first, but taking on a new credit card is actually one of the easiest ways to make a really significant dent in your debt.
A balance transfer means moving your debt from one card to another. You can even consolidate debt from multiple cards. If you have a big balance (at least a couple thousand dollars), this is the smartest move to help you catch up with your debt.
Citi Simplicity offers a 0% introductory APR on balance transfers and purchases for 21 months. After that, a variable APR, currently 14.24% to 24.24% depending on your creditworthiness. There is a 3% balance transfer fee ($5 minimum). There are no late fees, no penalty rates and no annual fees.
The trick is to look for a card with an introductory 0% APR for balance transfers. That way, you can focus your payment toward your actual debt (instead of interest charges). However, keep in mind that you'll likely need a good credit score to get approved for a balance transfer. So if your score isn't that great, this might not be an option right now.
Most 0% promotions have a balance transfer fee (usually 3% of the amount you're transferring), but the savings in interest charges could far outweigh the cost of the transfer fee over the long run. While rare, a few banks do have no fee balance transfers, but the best deals available are usually reserved only for those with a really good credit score.
Before you take this step, come up with a realistic payment plan to pay off your new balance before the promotional period ends. Even if there's no fee, it's smart to run the numbers through a calculator. (This one is CreditDonkey's creation.)
Use these helpful tools for more on the logistics of a balance transfer:
Pay More Than the Minimum
The tricky part about debt is that it's easy to get in denial about how long it will take you to pay it off.
It can be awfully tempting to only pay the minimum you see in every statement, but that adds up to a lot of money in interest over time. You should pay attention to the charts sometimes buried deep your credit card statements that tell you how long it will take to pay off the balance if you pay only the minimum (hint: it's a long time).
Never pay just the minimum payment if you can help it. Putting in just a little more each month can drastically reduce the interest and payoff time.
Payoff calculators like this one will give you a sense of reality. Play around with amounts to see how putting more toward your balance every month will mean paying less in interest charges over time.
For example: if you have $5,000 in debt with a 13.5% interest rate, a payment of $100/ month will take you 74 months to finishing paying off and you'll end up pay $2,390 in interest alone (almost half of the debt!).
But if you put just $50 more a month toward the payment, it'll reduce the payoff time to 43 months and shave $1,088 of interest.
The tips below go into even more detail about how to pay off debt:
STOP USING YOUR PRICIEST CREDIT CARD
One of the first things to do when you're trying to pay off credit card debt is to take an inventory of the cards you have.
Cash back and rewards are great, but the interest charges can sink you if you don't regularly pay off your balance each month.
Organize your cards and zero in on the one with the highest interest rate. Stash that one away where you can't use it. Keep in mind that you may not want to cancel it just yet. Cancelling your cards can actually hurt your credit score, and that's not something you want to do, when you're about to improve how you handle debt.
Once you've chosen the card to stop using, make it a priority to pay off that card first, so the interest doesn't keep accumulating. More on this a bit later.
For a few more tips on this subject, check out these pages:
- Credit Cards With Low Interest Rates
- How to Cancel a Credit Card
- 23 Money Mistakes Almost Everyone Makes
Cut Down on Unnecessary Expenses
Everyone is prone to the occasional shopping spree or the daily $3 coffee at Starbucks. The good news is that cutting back on these types of expenses can help you pay off your credit card balance.
Track your spending for two weeks - every single expense, no matter how small - and see if there are spending areas that you can cut. What can you live without? Can you cut back on the number of times you order takeout? Can you limit how many times you even step into a store to prevent impulse purchases?
This exercise will help you understand where your money disappears to every month. Once you realize that your daily $3 coffee adds up to be almost $100 a month, you may feel more motivated to cut it out and use that towards your credit card payment instead.
For more on understanding your budget, check out these links:
- Curb Your Desire to Shop
- Where Does All the Money Go?
- Scientific Ways to Trick Your Brain to Save Money
Create a Practical Budget
Once you understand your spending patterns and, perhaps more importantly, your spending issues, you can come up with a budget.
Most likely, if your credit card use has resulted in a mountain of debt, a lack of a working budget is part of the problem. Luckily, this problem is also easy to fix. You just need the determination to stick to it.
A budget, in its basic form, is just a plan for how you'll spend your money each month. To make one, just add up all of your expenses and subtract that amount from your income. Check out some budgeting software programs or download a budgeting app to your mobile device to help you get started and make sure you're accurately capturing all your expenses.
Do this step in tandem with cutting down on unnecessary expenses (step 4). Once you have a clearer picture of your total expenses and what spending areas you can cut down on, you can come up with a realistic number for what you can put towards paying off debt each month.
For more budget-making secrets, check out these helpful articles:
Pay Back Your Credit Cards Wisely
Now, you should start deciding which cards to pay off first. Rank your credit cards in one of two ways:
- interest rate or
- total balance.
If you're choosing based on the interest rate, the most effective way to pay off the debts is by starting with the card that has the highest rate (called the debt avalanche method). This saves you the most money on interest in the long term. We recommend this method as being the most efficient.
If you're choosing based on balance, you'll have to decide whether you want to start with the lowest or highest balance first. Knocking out those cards with the lowest balances right off the bat (called the debt snowball method) is a smart move if you need a psychological push at the beginning to keep you motivated.
If you need a boost in morale, focus on just paying off the card with the smallest balance first. You'll feel a sense of achievement and it could even get addictive to keep going.
The key to making this approach work is rolling over your payments every time you eliminate a card. The idea is to add to the payment to the next card in line. That way, you knock out the remaining debts faster.
Here's how it works:
Let's say you decided that you can afford to devote $300 every month to paying off credit card debt. So, you're paying $200 a month to one card and just the minimums to all the others.
After you've paid off the balance on the first card, apply that $200 payment to the next card on your list plus the minimum you were paying on the one that's now paid off. In other words, don't think that's $200 extra you've freed up! Roll it over to the next card. By the time you get to the last one on the list, you should be making one large $300 payment each month until it's gone.
For more on how to conquer your debt, check out these great sources:
- Calculator: When Will I Be Debt Free?
- How to Pay Off Your Credit Card Debt in a Year
- 2 Repayment Strategies
Reduce Your Interest Rate
Maybe you've looked into getting a balance transfer and have a payment plan, but you're still struggling to make progress in the debt you owe. Did you know that you can ask your credit card issuers directly if they can shave a few points off your rate?
If your account has been open for a while, you've always paid on time, and you don't have a huge balance, they may be willing to offer you a rate reduction temporarily. Just be aware that if your rate is lowered and you miss a payment for any reason, you may be subject to the default rate, which can be up to 29%, depending on the card.
Have more than $10,000 in credit card debt?
If you need years (instead of months) to pay off your credit card balance, a personal loan could be an option. You can use a personal loan to consolidate all of your credit card debt. Make sure to carefully understand the terms and conditions and avoid gimmicky settlement companies that seem too good to be true. (They are.)
But please be aware that this option only works if you have created a solid plan to pay back the loan. Otherwise, you will just be stuck with the same debt, just in another form.
If you are considering this, check out our in-depth review of SoFi Personal Loans.
- How to Negotiate a New Interest Rate
- What Exactly to Say to Get a Lower Credit Card Rate
- Average Credit Card Interest Rate
Find New Money to Pay Debt With
But what if you're already on a lean budget and just can't cut too many expenses? That's okay. Instead of trying to save more, change your tactic to finding new money.
No we don't mean combing the fields with a metal detector. Finding new money is a lot easier than it sounds. First of all, we bet you already have a ton of stuff in your house that you can live without - but your neighbors will love. Host a yard sell and/or list them on eBay or Craigslist. Whatever you make, apply that to your next bill payment.
If you think creatively, there are also a ton of side jobs you can do on the weekends. From baby/pet-sitting to lawn mowing to driving Uber. Don't feel like getting off the couch? No worries - check out our 41 ways to make money from home. If you are serious about paying off debt, you can always find ways to earn more money.
Also apply any windfalls to your balances. For example, if you get a tax refund, why not apply it towards your debt instead of going on a shopping spree? If you're due for a raise at work, try funneling that extra cash into your debt repayment instead of just spending the difference each payday.
For more, look to these pages:
- Calculator: The Impact of Making Extra Payments
- Is It Better to Pay Off Debt or Save?
- Credit Card Statistics
Tackling your credit card debt can be a daunting task if you're staring at those rising numbers and have no idea where to start. We hope our beginner's guide has helped to ease your fears so you can start taking on your debt with confidence.
The bottom line is that yes, you can pay off credit cards, even on a tight budget.
But it takes detailed planning and serious dedication. You have really to commit to it. Develop a plan of action and stick with it, and you'll be surprised at just how much progress you can make.
There is a 0% intro APR for the first 15 months on purchases. Plus, there is a 0% intro APR for 15 months on balance transfers made within 45 days of account opening. After that, a variable APR applies, currently 15.74%, 20.74%, or 25.74% depending on your creditworthiness.
Rebecca Lake is a journalist at CreditDonkey, a credit card comparison and financial education website. Write to Rebecca Lake at firstname.lastname@example.org. Our data-driven analysis has been recognized by major news outlets across the country and has helped young adults make savvy financial and lifestyle decisions.
Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.
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Disclaimer: The information for the Citi Simplicity® Card and Chase Slate have been collected independently by CreditDonkey. The card details on this page have not been reviewed or provided by the card issuer.