Credit card debt is reaching record highs. Many people struggle with cost of living increases paired with financial instability and other debts, leaving them to make ends meet by using credit cards. And while credit can be an essential tool for solving some financial issues, it can also become an issue itself.
Too much credit card debt can weigh you down with payments and lower your credit score, making it harder to achieve goals such as buying a car or house. Learning how to pay down your credit cards and manage your debt can help you use cards wisely without them becoming an anchor that holds you back.
Keep reading for tips for paying off credit card debt.
In This Piece
- Gather Everything
- Strategies for Paying Off Credit Card Bills
- Use a Debt Management App
- Consolidate Your Debt
- Keep Track of Your Credit
It’s best to know how tall a mountain is before you start to climb it. Gathering all your credit card information can help you see how far you have to go and the best path to take to pay off your debt. Make note of the balances, interest rates, due dates and minimum payments for each card.
Consider how your debt is dispersed. You may have many small balances on different cards or one big balance and a few small ones. Maybe you’ve already consolidated to one card or have constantly been transferring your balance. Being mindful of what your debt looks like can help you see what changes may make it easier to tackle.
Once you’ve compiled all that information, add up the minimum payments on each of your credit cards. This is how much money you must pay each month to stay current on your bills. If this number is higher than you’d like, it’s definitely time to start being strategic about getting out of debt.
Remember, though, that only paying the minimum amount due on credit cards can mean you’re paying down balances for years. What happens if you don’t pay off your credit card debt? You end up paying interest on those balances, which increases the cost of your debt to thousands or even tens of thousands of dollars.
The tips for paying off credit cards below can help you avoid those issues and save money in the long run.
Strategies for Paying Off Credit Card Bills
Going into your credit card debt-cutting mission with a set plan can help you stay on track and reach your goal. The first step to coming up with a good strategy for getting out of debt is to figure out what your budget is. You need to know how much money you want to put toward paying down your cards each month and figure out what’s reasonable for your budget long-term.
Top tip: You ideally need more money to put on credit card debt each month than your total minimum monthly payments.
Once you know how much money you can put toward paying down cards, decide on the best way to allocate it. Here are two common strategies for allocating your credit payments.
Your first instinct might be to divide and conquer your credit debt, but trying to pay all your cards down at once can be overwhelming and unrewarding initially. The snowball method involves taking down cards one by one, from the lowest balance to the highest.
For this method, you pay the minimum payment on all your higher-balance cards while putting the rest of your debt-fighting budget toward the lowest balance. Once you pay off that card, you move on to the next lowest—and so on until all balances are zero. This method gives you the satisfaction of completely paying off a card quickly, which can help keep you motivated.
Paying off your debt this way also means you have fewer minimum payments to juggle when you get to the higher-balance cards. This can make those larger balances seem less daunting, especially as you have the full power of your debt-fighting budget to throw at them.
If you prefer an approach with more potential cost savings and don’t mind some delayed gratification, the avalanche method may be better for you. This method still uses the idea of paying off one card at a time and only making minimum payments on the others, but instead of going from highest balance to lowest, you start with the card with the highest APR and work your way down by interest rates.
Paying down higher-interest cards first means you end up paying less overall in interest. Even before you pay down the card entirely, you’re still reducing the amount of debt you’re paying interest on. This also means you could pay off your cards faster, as you can use the money that would have gone toward interest to pay down the balance.
Use a Debt Management App
Debt management apps can help remove the clutter of organizing your accounts, which makes paying down your debt much easier to wrap your head around. They may also offer personalized strategies, financial tips and automatic payments. Some debt management apps, such as Tally, offer a low-interest line of credit to consolidate your cards with a lower APR.
Consolidate Your Debt
By consolidating your credit card debt to a single card or a debt consolidation loan, you’re left with a single payment each month rather than four or five. You can even automate payments so you don’t have to worry about paying anything late. Debt consolidation loans often spread the amount you owe over monthly installment payments that may be more budget-friendly than your multiple credit card payments were.
Many balance transfer credit cards come with an introductory 0% APR period. This gives you time to pay down your debt without any additional charges accruing, and you can use the end of the introductory APR period as your end goal for having the debt paid off. Make sure that goal is achievable, though, because the APR may skyrocket once the introductory time has expired.
It’s also critical to avoid running your credit card balances back up once you pay them off this way. If you run up the balances while paying a consolidation loan, for example, you end up with double the debt you started with.
Keep Track of Your Credit
Use Credit.com’s Credit Report Card to see where your credit stands. Outstanding credit card debt can damage your utilization ratio, bringing down your score.
Sign up to monitor your credit score and other information as you go through the journey of paying down your credit cards. This way, you can see how your efforts impact your score. You also know when your score is trending up, which may indicate it’s the right time to apply for credit cards with better interest rates or rewards or get ready for a big milestone, such as applying for a mortgage so you can buy a home.
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