In this post, you’re going to get 17 tips on how to pay off credit card debt fast.
Credit cards debt is a major portion of US consumers debt.
In the US, the average family credit card debt is $6,270 and 45.4% of families hold some kind of credit card debt.
And it is increasing over time due to the COVID19 pandemic and other economic factors.
So it is important to know how to pay off credit card debt faster and on time. Otherwise, it can result in poor financial health, no retirement savings, and bankruptcy as well.
Let’s dive into the strategies.
17 Quick tips on how to pay off credit card debt fast
1. Make multiple payments
Normally you’re required to make a minimum payment on your credit card balance. It usually ranges from 2% to 2.5% of the total outstanding balance.
If you’re doing it then your balance will wipe out one day but it takes a while. Because there are two main disadvantages:
- You pay more interest over time
- It takes many years to pay it off
- Negative impact on your financial health
- You bear a long term financial stress
Let’s understand it with a simple example. If you’ve $5,000 credit card debt with 15% interest and you are required to make $100 as a minimum payment each month. If you only pay the minimum then here is what happens.
- It takes around 7 years to actually pay it off
- You need to pay $2,896 in interest cost which is huge
This means you’re losing money and the debt will not eliminate faster. But consider the opposite scenario of when you make multiple payments like $500 a month. Then it takes only one year to completely pay it off and you only pay $375 in interest cost. That means you saved a big amount of $2,521.
There is no restriction on making multiple payments and you can pay as much as you can. This habit helps you raise your credit score as well if you’re down on it.
You can make a payment schedule of bi-weekly (8 times a month), weekly ( 4 times a month ), or bi-monthly. But as much you pay as faster the balance will go down. Try to make at least 2 payments a month.
2. Use balance transfer method
How to pay off credit card debt with a balance transfer method.
Using this method you transfer the existing credit card balance to a new credit card.
In other words, you pay the existing credit card debt with a new low-interest credit card.
There are four reasons customers do that:
- Don’t want to pay a higher interest rate
- For getting the benefit of 0% APR period( 12 to 18 months)
- Saving money by reducing cost
- Want cashback, rewards programs, and points
It comes with a little balance transfer fee of 3% to 5% of the total balance transferred. But some companies don’t charge that so they can attract new credit cards users.
It is a good strategy to pay off your credit card balance faster. But there are certain elements to pay attention to. For example, you need to abide by the rules of the agreement. Sometimes the company requires you to make minimum payments each month to keep 0% APR. You may also need to keep the utilization ratio low and under the credit limit.
Otherwise, if you don’t follow the rules the interest may jump to 30% including a penalty before the 0% APR period. Along with that if you want to save more and pay faster then utilize the full benefit of a 0% APR period. Make as much as payment you can to eliminate debt faster.
3. Debt Avalanche method
Using this method you pay the debt with the highest interest first. And follow the same scenario to pay the next highest until all debts are paid. But while doing this you pay the minimum balance on the remainings to ensure you don’t get delinquent on other debts.
You use all the extra money to one single debt and when it is paid then you use that to pay the next one and so on.
How do you implement the debt avalanche method?
For practically using this method you need to follow some simple steps:
- First of all audit your debt and find out which one has the highest interest rate
- Then list them down from highest to lowest interest debt
- And then you put the maximum into a high-interest one while making a minimum on other debts
For example, you’ve five credit cards with interest rates of 20%, 19%, 18%, 16%, and 15%. Now you first pay the card with 20% then 19%, then 18%, then 16%, and finally 15%. You don’t need to evaluate how much outstanding balance each one has.
But this method is not feasible for everyone and the big reason is motivation. People lose motivation with this method because they don’t see greater results at first. So the solution to that problem is the second method.
4. Debt Snowball method
This method aims at paying the lowest credit card balance first while making the minimum payment on all the other debts. You don’t need to take into account interest.
Here are the simple steps:
- Audit your debt and find which one is with the lowest balance
- Lsit down your debts from lowest to highest
- Target the lowest and start making payments while paying the minimum on remaining balances
For example, you’ve five credit cards with balances of $5,000, $1,500, $3,000, $2,500, and $4,000 each. Following the debt snowball method, you first devote money to pay the lowest one with a $1,500 balance and make a minimum on the other four. After that, you target $2,500 and so on until the card with $5,000 gets paid.
It allows you to see faster results and keeps your motivation. But this method takes one to 2 months longer depending on the interest rates.
These two methods are very effective and thousands of people paid their debt successfully.
5. Borrow personal loan
If you have a good credit score then getting a personal loan is easy. And use that to pay off your credit card balance.
Personal loans are one of the five options for consolidating debt. Here whether you have a single credit card or multiple, you can make them a single debt with a single payment.
But there are four key factors to keep in mind while going for personal loans.
Here they are:
- The first is loan terms. The lender offers different terms including long term and short term. The longer the term the more interest you’ll pay. So try to go for short terms like up to 6 months or less than a year.
- The second is the interest rate. Compare lenders on the basis of interest rates and go for the lowest one. Because if you get a low-interest loan then it becomes easier to pay debt and you save some bucks. This depends highly on credit score.
- The third is how much you can borrow. Again depends on the credit score and if you’ve good numbers then you’re a low-risk borrower. So you can borrow more. At least as much that you can pay the existing debt as a whole.
- Fourth is the fees and charges. There are some charges associated with personal loan origination. It is usually 1% to 8% of the amount you borrow and depends on how much your credit score is. For good credit and trustworthy borrowers, it gets eliminated. It includes charges like application fees, loan closing fees, and credit check fees. You also check terms and conditions regarding fees and go for low-fee lenders.
If all of the above factors are check-marked then go for personal loans. After that make timely payments and put more and more money towards repayments to eliminate it faster.
6. Borrow home equity loans
You take these loans against your ownership of your house. It is also called a subprime mortgage.
HEL is easy to borrow and has low-interest rates as compared with unsecured loans. The reason is that you put your property in the house as collateral for taking a loan. So the risk of loss for lenders gets eliminated. The credit score doesn’t matter much in HEL.
So if you have ownership in your house for the payment you made on the existing mortgage then you can use this option.
In this loan, you’re actually consolidating the existing debt for low-interest subprime mortgages.
7. Avoid non-essentials
Americans spend $18,000 per year on nonessential items which boils down to $1,500 per month. This includes dining outside, wearing branded products, buying useless items, and more.
|Non-essential items||Average cost per month|
|Takeout or delivery||$177.88|
|Gym classes or memberships||$72.53|
|TV or movie streaming services||$23.09|
|Music streaming services||$22.41|
This amount doesn’t matter for a rich person or a financially strong one. But for an average, it is a huge amount.
If you do the same then cut back on them and use that money to pay off credit card debt. It helps you avoid debt consolidation, debt settlement, and even bankruptcy.
8. Increase your income
When it comes to how to pay off credit card debt faster, this strategy is amazing.
An amazing tip for paying off your credit card balance. Your existing debt problem is only because of low income and higher expenses. That’s why if you earn more each month then not only does debt get paid faster but you can satisfy other needs as well.
So what you can do for increasing your monthly income?
There are hundreds of ways to do that. And you’re not limited to just your job. Here are some easy to follow tips:
- Do part-time or overtime work
- Start a side business in a local city
- Provide freelance services offline or online
- Get into online business
- Start an online part-time work from home job
- Make a youtube channel on cooking, crafts, or any other
And many more are available if you search Google. Just choose the right one that interests you and goes with it.
9. Avoid using credit card
This doesn’t mean that you stop credit cards at all. But instead, use your debit card or cash to pay for purchases.
But here avoiding credit cards means two things:
- Don’t use it for every small and large purchase
- Use your debit card or cash to pay for purchases
The reason is that paying for small purchases can lead to big debt because interest compiles very fast. So if you use a credit card in the right way and don’t rely much on it then the debt will be lower and easy to repay.
10. Utilize existing savings
Do you have enough savings in an emergency fund or in a savings account?
Then using them for paying down credit card debt is a good option. This works amazing because you use your own money to pay the debt. When debt is paid then you can save the money that you were paying for debt.
For a short period of time if there is no emergency or financial problem then utilize savings for paying credit card debt. This is the easiest, most reliable, and most effective way. You don’t incur expenses like interest or loan origination fees because you’re paying from your pocket.
Other than that if the debt amount is less then devote your regular monthly savings to credit card repayments.
11. Put your dreams on hold
Everyone has dreams like buying a car, house, favorite apartment, furniture, or any other luxury item. Fulfilling these dreams is important for living a good life. But when your financial condition is bad avoiding dream is a good option. Especially when you’re dealing with debt while having a low income.
If you buy a car or house you need to take further debt. Also, dozens of new expenses come with it like fuel, maintenance, wear and tear. That takes money out of your pocket and your financial condition becomes worst.
So control these dreams and wait until the favorable situation comes. Until that focus on paying exiting debt and devote the maximum amount towards it.
12. Borrow from family or friend
This is not a much reliable method. But if you have a wealthy father, uncle, mother, friend or any other relative then ask them for a loan. The reason is that it is an easier, cost-effective, and faster way to pay your debt.
Things to keep in mind are that before borrowing sign an agreement of terms and interest rates. And try to settle the deal at lower interest as possible.
When you get the loan then pay your credit card debt. And make timely payment to that family member. This helps you avoid any conflict.
13. Sell your extra assets
If you’ve any extra land, machinery, extra car, or any other non-essential item at home, then sell it for covering your existing needs. But remember they must be unnecessary in the normal course of life and put no negative impact on your daily life.
14. Avoid new credit cards
When you’re under credit card debt that you want to come out of, it is better to then avoid getting new credit cards. The reason is that when you get new cards the credit limit increases and you spend more and more. As a result, your debt climbs up and interest makes it bigger.
So this will cancel the effect of existing efforts for paying the debt. Also, it will negatively impact your credit score when you apply for multiple new credit card accounts. Because your credit history goes through a serious credit check which lowers your credit score.
15. Use debt settlement
It refers to getting out of debt by settling it for less than the amount due. Simply you make an arrangement with your lender to take a less amount than the outstanding and write off your debt.
This option is reliable when you’ve very poor financial condition and you’re delinquent on payments. And why lenders can possibly settle debt with you is because there is a risk of loss.
But it is not guaranteed that you’ll be successful at settling debt. Because the lender isn’t bound to make that kind of arrangement. But if you’re successful then you can pay debt faster and save money.
For debt settlement, you can do it on your own if you’ve good communication skills. Otherwise, you can contact a debt settlement company to do it for you. They usually charge fees of around 15% to 40% for tackling your debt.
But remember debt settlement has the worst impact on credit score and can significantly lower it. So think about other options before going for debt settlement.
16. Get 401k loan
401k loans refer to taking out loans from your 401k plan. Means you borrow from yourself.
And fortunately, 78% of 401k plans allow the employees to take loans from their plan.
Fo paying any debt, especially credit cards it is the best option. Why? Because it is easy to get, lower interest rate, and flexible conditions.
Simply you borrow from yourself and then pay it to yourself including interest. No one likes to pay interest to banks and creditors.
It is the best option when you have:
- Good savings in a 401k plan
- Low credit score
- Don’t want to take private loans
There is some loan origination fee of $50 to $100 which is not a serious factor. The 401K loan can slower your retirement investment growth.
17. File bankruptcy
It is the final option if your credit card debt gets huge and overwhelming. Here you file bankruptcy in the federal court which declares you as insolvent.
There are two main chapters that are 7 and 13 under which you can file bankruptcy. But it depends on your qualification.
Under chapter 7 bankruptcy it is possible that some of your assets like car, jewelry, or any other assets are taken for covering debt expenses. But the majority of filers don’t face that. While in the chapter 13 bankruptcy your assets are safe but you’re given a three to five years plan for paying off debt.
But in both cases, bankruptcy severely damages the credit score. It also lowers your trustworthiness and in the future, insolvent persons face difficulty in getting loans. So the same can happen to you.
So now you have 17 strategies on how to pay off credit card debt fast. And you don’t need to follow all of them just choose the ones which are suitable.
Let’s take a look at the summary of all the tips:
- Make multiple payments
- Use balance transfer method
- Choose a repayment method
- Borrow personal loan
- Borrow home equity loan
- Avoid non-essentials
- Increase your income
- Avoid using credit card
- Utilize existing savings
- Put your dreams on hold
- Borrow from family or friend
- Sell your extra assets
- Avoid new credit cards
- Use debt settlement
- Get 401K loan
- File bankruptcy
All of the strategies have their own advantages and when you can use them. But remember bankruptcy is the final option and don’t go for it without trying other options. Use it when the debt is too much that it becomes impossible to pay. Because bankruptcy seriously damages credit score and reputation.
Now it’s your turn to use these strategies to pay off your credit card debt. But let me know in your comments which strategy you like the most?
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