There is no one best way to get rid of credit card debt, because it depends on your situation. You can focus on getting each card paid off individually, transfer your balances to one card, ask for a lower interest rate or get a loan to pay off the balances. Whatever your financial goals and dreams, however, paying off your credit card debt is a good step in the right direction. Find out why credit card debt can be a problem and how to start moving forward financially.
Understanding How You Got Here
That piece of plastic in your wallet can be a great tool. You can use your credit card to help you pay for the things you need and build your credit in the process. But sometimes your spending can get out of control, landing you in credit card debt. In fact, according to Experian’s 8th Annual State of Credit Report, released in 2018, the average debt per consumer is $24,706 not including mortgages.
High balances and high finance charges can put a real drain on your wallet and limit your financial options, both in the moment and down the road. If you let those balances linger long enough, they could keep you from achieving important goals and dreams, such as buying a home, as your credit card debt can affect your overall credit.
No matter what method you choose, step one is getting organized. Gather all the information for every card you’re carrying a balance on. Make note of the balances, interest rates, due dates and minimum payment for each card. Ask yourself these questions.
- Do you have lots of balances spread out over many cards?
- Do you have one big balance and several small ones?
- Have you consolidated your debt to one card but can’t seem to make any headway on your balance?
- Have you been playing the balance transfer game for months and months?
Once you have all of that information compiled, add up the minimum payments on each of your credit cards. This is how much money you must pay each month just to stay current on your credit card bills. If this number is higher than you’d like, it’s time to start thinking about being strategic in getting out of debt.
5 Tips for Paying Off Credit Card Debt
The Experian Report showed that the average consumer has 2.48 bank cards, carrying an average balance of $6,354 in total. If you’re to separate yourself from these statistics, follow the tips and strategies below to pay off your credit card debt.
1. Pay Off the Balance With the Highest APR First
Look at all of your balances and the interest rates associated with each. Concentrate on paying off the card with the highest annual percentage rate while still making minimum payments on your other cards. Once that card is entirely paid off, you move on to the one that has the next highest APR, and so on.
From a monetary sense, this strategy may make the most sense because it cuts out spending so much on interest. To implement this, you simply boost your payments on the card you’re trying to pay off. Choose an amountyou can afford and stick with it. If you start by paying $150 extra on that credit card, keep paying at least $150 each month until the card is paid off.
Once the first card is paid off, take that extra $150 and start putting it toward the next card in line. Add in the minimum payment from the previous card, and you could pay even more extra each month. That creates a snowball effect as demonstrated in the example below.
- You start with three cards with minimum payments of $50, $30 and $20.
- You pay $200 a month on the first card and the minimum payments on the other two. That $200 represents the $50 minimum payment and the $150 extra.
- When that card is paid off, you start paying $200 extra on the next card, which means you’re paying $230 on it every month.
- By the time you get to the third card, you pay $250 every month. That means you pay off cards even faster as you work through this process.
2. Pay Off the Card with the Lowest Balance First
If you feel productive marking things off a to-do list, this may be a good strategy for you.It’s a great way to build up a little momentum and see the results of your hard work sooner. With this strategy, you increase your payment on the credit card with the lowest balance while continuing to make the minimum payment on the rest of your credit cards. Once you pay off the card with the lowest balance, you move onto the card with the next lowest balance, and so on.
It’s quicker and easier to pay a $500 balance down to zero than a $2,500 balance. And it feels good to pay a credit card bill in full, no matter what balance you began with. Plus, every low balance card that you pay in full is one less minimum payment that you have to pay each month. By knocking out one or two smaller balance cards, you’ll be able to shift your money to focus on paying off those larger balances.
3. Consolidate Your Debt to a Single Card or Loan
Like things simple? This pay-down strategy might be for you. By consolidating your credit card debt to a single card or a debt consolidation loan, you’ll be 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 late.
Need an extra incentive? 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 time as your end goal for having the debt paid off. Typically, the APR skyrockets once the introductory time has expired, which can act as even more motivation.
4. Make Your Budget Work for You
There are many tips for paying off credit card debt, but if you’re not focusing on the overall problem of spending more than you make, it’s easy to stay in the same cycle. By creating a budget that accurately accounts for your expenses and income, you’ll be able to curb extra spending and find more money to throw at your credit card debt. Whether you use an app or go with a pencil and paper is a matter of personal preference. As long as it works for you and your lifestyle, any realistic budget can be a good budget.
5. Be Realistic
It’s understandable to want to get out of debt as quickly as possible, and hustle and habit changes can get you there faster than you may think. However, if you’re facing large amounts of credit card debt, it’s also important to be realistic about what you can do and how fast you can do it. Here are some common questions people have when looking for tips for paying off credit card debt.
- How can I pay off my credit cards faster? Put as much money every month as possible toward your payment. The more you can pay above the minimum, the faster you’ll get out of debt.
- How can I pay off $5,000 in debt fast? You can tap into your savings account or sell off a second car or things from around the house to pay off a large debt quickly. You may also be able to get a personal loan or do a debt consolidation, but keep in mind this only moves the debt around and doesn’t really pay it off.
- How do I get out of credit card debt without paying? The only way to get rid of credit card debt is to pay it off or file for certain types of bankruptcies.
- Is it better to pay off a credit card all at once? Paying off your card all at once can result in a larger score jump than paying it off over time because you’ll be lowering your credit utilization ratio.
How You’re Affecting Your Credit
High balances on your credit cards can be bad for your credit scores. Payment history is the biggest influencer of your scores, but the second biggest is your debt usage. This means the amount of debt you’re carrying in relation to your total credit limit is going to weigh in on your scores. If you’re maxing out your cards, your credit utilization could be high, which lowers your score.
Credit card debt can pile up for all kinds of reasons. Paying it down is pretty straightforward—you just need a plan. Pick a pay down strategy and stick with it until your balances are paid off in full. And remember, paying off a card is great, but once you do, you’ll want to think twice about closing the card as the age of your credit lines is the third-largest influencer of your credit scores.