Burgeoning credit card balances can cause a person plenty of anxiety, so if you’re staring at one every month, you’re probably wondering how to pay off credit card debt — or, perhaps, more pointedly, how to pay off credit card debt fast. While there aren’t too many instant-fixes — outside of, you know, a major windfall — there are steps you can take to minimize the damage and ultimately knock out your credit card debt once and for all. These tips can help you move from debt-stressed to debt-free.
Start With a Credit Reality Check
It can be tempting to ignore credit card balances the second they get too big and just start mindlessly making minimum payments. However, there are dire consequences associated with that strategy. For starters, credit card interest adds up fast. Most credit card issuers require a minimum payment of 1% to 2% of your balance. So let’s assume, for example, you owe $6,000 on a credit card with a 15% annual percentage rate (APR) and your issuer requires 2% of that balance as a minimum payment. You’d wind up paying close to around $9,184 in interest, were you to only make that $120 minimum for the full 355 months it would take to pay that $6,000 balance down. (To help you come up with a better plan, you can use our credit card debt calculator.)
Plus, mega-interest aside, those credit card balances are weighing down more than your wallet. They may be dragging down your credit scores, too. (If you want to see how your debt is affecting your credit, you can view two of your credit scores for free on Credit.com. They’re updated every 14 days so you can monitor your score as you pay down debt.)
To reverse course quickly, consider these strategies for how to pay down credit card debt instead.
1. Pay Off the Smallest Balance First
If you have several credit cards with various balances, this might be the way to go. Take the account with the smallest balance and pay double, triple monthly payments, whatever you can afford each month, all while continuing to make the minimum payment on your other credit cards.
Once that smallest balance is knocked down to zero, move on to the card with the next lowest balance. This pay-off strategy gives you the great satisfaction of seeing a card balance flip to zero early on in your pay-off plan. Once one is down to zero, then two, you’ll be motivated to keep going until all those balances read zero.
2. Pay Down the Card With the Highest Interest Rate
Are you sick of the money that is being sucked away by the finance charges on your credit cards? And are you looking for a no-nonsense and effective way to slash your debt? Then zero in on the credit card with the highest interest rate first and focus your payments there.
Pay double or triple your minimum payments on the card with the highest interest rate and most costly monthly finances charges, while continuing to make the minimum payments on your other credit cards. This strategy is the most efficient way to attack your debt, but it takes discipline to stick with it, especially if the card with the highest interest rate has a pretty hefty balance. Once you pay off the card with the highest interest rate, move on to the card with the next highest interest rate and so on.
Choose a payment strategy that works for you and stick with it. You may even adopt a combination approach. Maybe the card with the highest interest rate also has the lowest balance. So you’ll get double satisfaction that comes with attacking the card with the highest APR and seeing a smaller balance flip to zero pretty early on in your this-debt-must-go plan.
3. Consider a Balance-Transfer Credit Card
Many credit card issuers offer 0% introductory APRs to customers who transfer a balance over to their card from another. That 0% APR will expire eventually — usually within 6 to 12 months, though some of the better balance transfer credit cards last as long as 18 to 21 months — and most offers involve a fee (typically 2% to 3% of the balance you’re carrying.) However, for someone carrying a high-interest credit card, the right balance transfer card can be a real lifesaver.
Just remember to read the fine print of any balance-transfer offer you are considering carefully — and refrain from running up any new charges on the card. The aim should be to pay the balance off before the introductory APR period expires and that can get a whole lot harder if you’re adding to the balance. When assessing balance transfer credit cards be sure to note:
- How long the introductory 0% APR lasts for
- Whether that APR applies to purchases, too, and not just balance transfers
- What the go-to APR on balances transfers and purchases will be once the introductory rate expires
- The fee associated with transferring the balance
Finally, while the best balance-transfer credit cards refrain from charging retroactive interest, some cards touting deferred-interest financing, particularly store credit cards, will require you to pay interest on the full balance you transferred if you can’t pay it all down before the 0% introductory APR offer expires. So, again, you’ll want to comparison-shop for the best offers by reading their terms and conditions closely and be realistic about how long you think it will take you to pay the card off.
4. Look Into a Personal Loan
You can also consider taking out a personal loan to pay off all of your credit card balances. These personal loans — sometimes, referred to as debt consolidation loans — can be a good option for someone who doesn’t trust themselves to not continually run their credit card balances up. See, personal loans are installment loans — borrowers agree to make a set monthly payment at a certain interest rate for a specific period of time. That means, in taking out the loan and using it to pay off your credit card debt, you’re given yourself a hard date in which that debt will be completely off the books.
On the flip side, you’re locking yourself into a set monthly payment — you can’t make a minimum payment like you can on a credit card if you get in a jam. Plus, interest rates on personal loans are primarily determined by your credit scores, meaning you may or may not qualify for a lower rate than the one you’re already paying. Again, here it helps to read all offers carefully and do some research on lenders ahead of time. To summarize, when vetting personal loans look into:
- Whether the APR you can qualify for will be lower than the one your credit card(s) are carrying
- The length of time you’ll be paying the loan back
- Whether the monthly payment fits into your budget
- Whether there are any penalty fees associated with paying the loan back early
Remember: The last thing you want to do after using a personal loan to pay off your credit card debt is to run those balances up again. Otherwise, you’ll wind up with more debt than you started with. If you go this route, it might be a good idea to hide your plastic while you’re paying off your personal loan.
Additional reporting was contributed by Lucy Lazarony.