Our goal at Credible Operations, Inc., NMLS Number 1681276, hereafter referred to as “Credible”, is to give you the tools and confidence you need to improve your finances. Although we promote the products of our partner lenders, all opinions are our own.
If you’re wondering how to pay off your credit card debt, these 6 proven strategies can help you pay down your balances and free yourself from debt. (Stock)
Paying off credit card debt may seem impossible, but it can be done. With a well thought out plan and strategy in place, you can make steady progress towards paying off your balances until you are finally debt free.
Here’s a look at six proven strategies to help you pay off your credit card debt, plus some tips for avoiding credit card debt in the future.
Ideal for those who want to save on interest charges
Known as the avalanche of debt method, this strategy consists of making the minimum monthly payments on all your credit cards, except the one with the highest interest rate. Focus on making the largest possible payment on your highest interest card to pay down your balance quickly. Then, once that card has paid off, you will move on to the card with the next highest rate. You will continue this process until all of your credit card balances have been paid in full.
The biggest advantage of the debt avalanche method is that it will save you money on total interest charges. By tackling your highest interest debt first, you’ll ensure that less interest accrues on your outstanding balances over time. Also, since the total amount you’ll owe will be smaller, you should be able to pay off your credit cards sooner, assuming you’re able to continue making payments consistently.
Unfortunately, it may take longer to see substantial progress with this method, especially if your highest interest credit card balance is quite large. If you’re someone who tends to get discouraged when you don’t see results right away, you may be better suited for the next debt repayment strategy.
Ideal for those who like to see quick results
With the snowball method, you’ll make the minimum monthly payment on all of your credit cards except the one with the lowest balance. On this card, you will want to make the highest payout possible. Then, once you’ve paid off that card, switch to your card with the lowest balance until you’re completely debt free.
The biggest advantage of the debt snowball method is that it gives you fast results. It is meant to entice you to continue your debt repayment journey by offering you a series of small payoffs at the start. Even if you only pay off a small balance, your confidence will likely increase as you progress.
The downside to the debt snowball method is that you’ll likely pay more interest over time. These additional charges will increase the total amount of money you will pay to your creditors. They can also lengthen the process of paying off your debts.
Ideal for those juggling multiple debt payments
A debt consolidation loan is a Personal loan that you use to pay off high-interest debt, especially credit cards. To take out a debt consolidation loan, you will apply for a new loan from a lender. Then, if you’re approved, you’ll use the loan funds to pay off your existing credit card balances. Some personal lenders will pay your creditors directly for you.
Credible, it’s easy to compare personal loan rates from various lenders, all in one place — and it won’t affect your credit score.
The main advantage of a debt consolidation loan is that it lets you streamline multiple payments into one. If you’re struggling to meet your minimum payments and due dates, this may be a good option for you. Plus, since personal loans often have lower interest rates than credit cards, chances are you’ll save money on interest charges over time.
It is important to note that debt consolidation loans often come with additional fees. Depending on the terms of your loan, the lender may charge an origination fee, which is an initial fee that covers the administrative costs of underwriting the new loan. Assembly costs typically range from 1% to 8% of the total loan amount, and the fee will be deducted from your loan funds when disbursed. In other cases, you may have to pay a prepayment penalty if you decide to prepay your loan.
Ideal for those with high credit scores
Balance transfer credit cards allow you to transfer your balances from an existing high-interest credit card to a new card with a lower interest rate. Balance transfer cards often come with an introductory APR of 0% for a certain period, and some cards may even waive the balance transfer fee during the promotional period. To use this debt repayment method, you must first apply for a new credit card and get approved.
The biggest advantage of a balance transfer credit card is the introductory promotional rate. For a limited time, you’ll have the option to pay off your new balance without accumulating interest. This can help you make further progress in paying down your balance.
Balance transfer credit cards are generally only available to borrowers who have higher credit scores. If you have a lower score, you may need to consider other options. Plus, there’s the promotional schedule to consider. Once the Interest Rate Introductory Period is over, your rate will adjust to the card’s regular rate, which may be higher than the rates you were paying on your original credit cards. Balance transfer cards often come with a balance transfer fee, usually 3% to 5% of each amount you transfer.
Ideal for those whose debt has become unmanageable
Seeking debt relief involves hiring a third party to negotiate with your creditors on your behalf. Debt relief usually comes in one of three forms: a debt management plan, debt settlement, or bankruptcy. With these methods, the third party can help you negotiate the refund, which may be less than the total amount you owe in some cases.
When it comes to debt relief, the main advantage is that there will be less legwork for you. Negotiating with creditors often requires making several phone calls and sometimes even sending letters. When you hire a third party, much of that work is handled for you.
This method also has multiple drawbacks. For starters, debt settlement companies often charge high fees to negotiate your debt for you. The company may also ask you to stop making payments on your credit cards, which can have negative effects. affect your credit score when missed payments show up on your credit report. Finally, some debt settlement companies are disreputable. If you’re considering going this route, be sure to do plenty of research. To make sure you are dealing with a legitimate company, contact your state attorney general.
Using a personal loan to consolidate debt can often be a better option than settling your debt for less than you owe. If you’re opting for a personal loan to pay off your high-interest credit card debt, visit Credible for view your prequalified personal loan rates in minutes.
Ideal for those who do not qualify for other debt repayment options
If you can’t make any of the other debt repayment options work, you might want to consider borrowing money from family and friends. If you choose this option, it’s a good idea to carefully consider who you’ll be asking to lend you funds, draft a repayment agreement, and prioritize the necessary payments.
Access to flexible repayment terms is undoubtedly the biggest advantage of borrowing money from relatives. People around you will often be willing to give you a lower interest rate than normal, if they charge you interest. They can also be flexible about your repayment schedule.
Too often, money has the potential to ruin relationships. If you don’t pay back what you owe, it will most likely put a strain on your relationship.
Now that you have a better idea of how to repay credit card debt, the next step is to learn how to avoid taking on more debt in the future. Here are some strategies to help you stay debt-free:
- Spend what you can afford. Although credit cards allow you to fund purchases and pay them back later, it’s best to treat your credit cards like cash. If you only spend the amount you have in your bank account, you’ll be able to pay off your balances in full and avoid accruing interest or charging new debt.
- Pay as much as you can. Even if you can’t pay off all of your balances each month, you should make the highest possible payment. When you only make the minimum payment, it results in the accumulation of a significant amount of interest charges, which can cost you more money over time.
- Pay on time. When you make a late payment, interest charges start accumulating. You may also have to pay late fees. In addition to costing you money, late payments can also negatively affect your credit score.