If you’ve recently prioritized paying off your credit cards, you may be wondering what’s the best way to pay off credit card debt.
There are several ways you can go about it, but some strategies are better than others. Below are a few ways you can speed up the debt payoff process and get rid of credit card debt once and for all.
1. Inventory all your cards
Before you can formulate any plan at all, it is important to know exactly where you stand.
If you have multiple credit cards carrying a balance, here’s what you do. Write down the name of each card, the balance, and the interest rate on each of them. This will show you the best place to dedicate your efforts.
You also need to know where you stand in terms of how much you are able to allocate to debt repayment each month. Make a list of all of your income and expenses on a monthly basis. Your income minus your expenses are what you have to work with in terms of making additional debt payments.
If your expenses exceed your income, you will need to improve your cash flow by reducing your expenses, increasing your income, or both.
2. Consider a balance transfer
Granted, this strategy isn’t for everyone — especially those who have mediocre credit or are trying to avoid new credit altogether. But if you do have excellent credit and can qualify for a 0% balance transfer, it could be a solid option for cutting interest costs and paying off your credit card debt much faster.
Here’s why: When you carry a balance month-to-month, interest gets tacked on. Next month, you not only have to pay your balance, but also the interest that got added on. Can’t pay in full this month either? More interest gets added to the balance, and so on.
Interest charges can really set you back when you make any progress toward paying down debt. But you probably already knew that.
A balance transfer could help solve that problem. The idea is that if you transfer your credit card balance from your existing card to a new issuer, they’ll reward your new business with an introductory interest rate of 0%. Typically, that rate lasts from 12-18 months. Then the interest rate resets to what is standard for that particular card.
The key here is to pay down the balance before your time is up. Often, if you don’t pay off the entire balance prior to the expiration of the introductory rate, you’ll be charged the regular rate retroactively on the entire balance, not just your remaining balance.
Also keep an eye out for fees; only sign up for balance transfer offers that come with low or no fees for transferring the balance, as well as no annual fee. And most importantly: Don’t transfer a balance unless you are totally confident you’ll be able to pay off the balance completely before interest starts accruing.
3. Target your repayment efforts
If you don’t take the balance transfer route, you still have a few effective options to choose from. Consider, for example, the debt snowball or debt avalanche methods — two strategies for paying off debt fast.
Here’s how they work:
Debt avalanche: When following this debt repayment method, you want to focus your efforts on the credit card that is charging the highest interest rate first. Pay the minimum on all of your credit card balances except the card with the highest interest rate. Then dedicate any extra funds you have toward extra payments to this card.
Once you pay off your highest-interest balance, move on to the next highest (and continue to pay the minimums on the rest). Keep working your way down until all your cards are paid off.
The debt avalanche is the best way to pay off credit card debt that results in the most savings. Because you eliminate your high-interest debt first, you prevent balances from ballooning and mitigate future interest charges.
Debt snowball: Alternatively, you might decide to focus your efforts on the credit card with the lowest balance. This is known as the debt snowball.
Rather than making extra payments toward the credit card with the highest interest rate, you instead work on paying off the lowest balance. Once your smallest credit card balance is paid off, move on to the next-highest, and so on.
The debt snowball won’t save you money on interest like the debt avalanche method, but it’s the best way to pay off credit card debt if you have trouble staying motivated. By tackling smaller balances first, you can experience wins right away and stay pumped to keep going.
4. Consolidate credit card debt with a personal loan
Finally, consider taking out a personal loan. This is the best way to pay off credit card debt if you have a large balance with a high interest rate or several high-interest credit cards.
Consolidating credit card debt with a personal loan usually means cutting down the amount of interest you pay, since personal loans tend to have much lower rates than credit cards. Again, by lowering your interest rate, you free up more cash to pay towards the principal balance.
It’s a win-win: pay off your balance faster and save money in the process.
Another major benefit to using a personal loan to pay off credit card debt is that you go from a revolving line of credit to an installment loan. There’s no way to rack up new expenses (assuming you cut up all those old cards) and dig yourself back into a hole. Once the personal loan is paid off, you’re officially free from that debt.
Choosing the best way to pay off credit card debt
All of these methods are proven ways to knock out debt, but know that there’s no one best way to pay off credit card debt for every person. You’ll need to consider your entire financial situation before deciding on your plan of attack.
For instance, if you have other debt such as student loans or a car loan, you may want to factor the repayment of those loans into your overall plan.
And you don’t have to choose just one strategy, either. Often, these methods work best when used in combination. Plus, there are several more strategies you can try out.
Paying off credit card debt is a marathon, not a sprint — but you can still make great time. By creating a plan and focusing your efforts, you can make your credit card debt disappear fast.
Interested in a personal loan?Here are the top personal loan lenders of 2017!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.39% - 29.99%||$1,000 - $50,000||Visit Upstart|
|5.19% - 14.24%1||$5,000 - $100,000||Visit SoFi|
|8.00% - 25.00%||$5,000 - $35,000||Visit Payoff|
|5.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$5,000 - $50,000||Visit LendingClub|
|5.25% - 12.99%||$2,000 - $50,000||Visit Earnest|
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