How to pay off credit card debt

Credit card balances can shoot up in no time. The longer you wait, the more interest is charged and the risk of default arises. Reckless purchasing without any managed budget results in big credit balances that pose financial risks. Your credit score also suffers if you fail to pay off credit card debt in time. You must plan your purchases and check your balance regularly to avoid any charges.

If you have balances in multiple cards, it can get daunting to deal with different APRs and pay them individually. There is no established or standard way to pay off credit card debt fast or efficiently. Depending on your goal and timeline, several options can be utilized in this regard. Below are some of the best ways to pay off credit card debt.

Pay Minimum Balances First

In this method, you arrange your debt in ascending order of balances. You pay the minimum required amounts on all cards and a bit extra on the card with the least balance. Once that card is paid off, you move on to the next minimum balance card. This method is known as the debt snowball method.

Pros: With this method, you start clearing your debts one by one. The clearance of card balances gives you the motivation to maintain your budget and pay off the rest of the debts.

Cons: You may have to pay more in interest if you use this approach. If you have large balances, then the percentage amount of interest will be high as well. 

Focus on High-Interest debt

If you want to avoid high-interest payments, then you can first pay off cards in the descending order of interest charged. In a way similar to the first method, you pay the minimum amount on all cards and more on the one with high interest. As interest is charged as a percentage of your balance, larger debt has more interest. Once it is paid off, you move on to the one with the next highest interest. This method is called the debt avalanche method.

Pros: Earlier payment of larger balances will reduce your expenses by saving on interest payments.

Cons: You may be reducing your interest payments but this can take a long time. If you have large balances, then starting in descending order will take a long time to pay. So if you want to pay off debt faster, then maybe try another approach.

Get a Balance Transfer Card

A balance transfer card allows you to move one or more of your card balances into a single new card, for a transfer fee. In most cases, an introductory rate of 0% is charged for a limited time to incentivize people towards this option. This means all your payments will be going towards the principal amount during this period. Although there is a fee charged for the transfer, you can save more because of the 0% rate than is charged as the transfer fee.

Pros: The introductory rate allows you to even pay off your debt full without interest charged. Otherwise, you can still pay back a lot of principal within this period.

Cons: There is a balance transfer fee charged, usually 2-5% of the total balance. Also, once the initial 0 rate period ends, interest will start accruing.

Consider a Loan Consolidation Plan

If you struggle with multiple payments, then this is the right option for you. Loan consolidation allows you to combine all your debt balances in a single loan. Often, this results in a lower interest rate loan as compared to the rate on your multiple debts. You use the amount from the loan to pay off all your balances and then pay back the consolidation loan in single payments.

Pros: This method simplifies your payments into single ones. The repayment terms are often very flexible. You also get a lower interest rate.

Cons: You are not guaranteed to get a loan consolidation. There are certain requirements and criteria set by companies offering consolidation services.

Contact a Credit Counselling Service

These companies employ experts in personal finance and debt repayments. If you are confused about your goals or your credit repayments, you might want to go to one of these services. They can help you decide on a plan and negotiate a consolidation loan as well.

Pros: The company handles all your financial calculations to finalize a repayment plan. They also help with any negotiations in repayment plan terms.

Cons: Since they work on your behalf, they do not always negotiate terms suitable to you. They also charge fees for their services.

The Bottom Line

There are several ways to pay back credit debt fast. But bear in mind your goals and financial situation to choose the option most suitable for you. The more you delay your payments, the more financially unpleasant it gets for you. Lastly, keep track of your shopping and maintain a regular budget of your expenses and income to avoid any future problems.

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