This is the time to get rid of credit card debt. The economy is starting to return to normal after the COVID-19 pandemic, and the average American personal savings rate has jumped to record levels. Check out our 6 ways to pay off credit card debt fast
However, many people are still stuck in high-interest credit card debt; a burden that will only get worse when the Federal Reserve raises rates early next year.
In other words, now is the time to act to reduce that debt – especially if you are able to save money during the pandemic. Here are six smart strategies ways to pay off credit card debt fast.
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6 Ways To Pay Off Credit Card Debt Fast
· Pay an Additional Monthly Payment
You’re probably familiar with monthly billing cycles, but you don’t have to wait for a payment due date to pay off a portion of your balance, and you’re not limited to making just one payment each month.
Credit card interest doubles daily, and the finance charges you owe are based on the average daily balance of your account. This means that for each day you wait for payment, you will have to pay more interest charges.
If you get paid bi-weekly or bi-monthly, it may be possible to make two payments per month; If you get paid more — say you get a paycheck weekly or you’re a tipped worker you might want to consider starting a debt management plan by paying weekly.
Another advantage of making more than one monthly payment is that if you use that money to pay off your credit card balance once you earn it, you won’t have the opportunity to change your mind later and splurge on something else with that money.
Just make sure the total amount of money you pay by the due date on your credit card statement is at least equal to the minimum payment because late fees and penalty rates still apply if you fail to do so.
Here’s another important tip: Reducing your debt quickly can also improve your credit score by lowering your credit usage, making it easier to qualify for a balance transfer credit card (read for more information on how to do this).
· Get a Balance Transfer Credit Card
If you have a high credit score, you may qualify for a card that can help you pay off your outstanding balance sooner.
Balance transfer credit cards offer 0% introductory APRs for a promotional period – this varies, but 12 to 18 months is the norm. This introductory period gives you a chance to pay off your debt quickly: Since you don’t pay interest, your entire monthly payments go directly toward paying off the principal. Make it a priority to pay off your balance before the promotional period ends – especially if your non-introductory APR is high.
Warning: A balance transfer credit card that also offers 0% annual interest on purchases might sound like a good feature, but it’s important to focus on your highest priority (paying off your credit card debt).
Also, know that many balance transfer cards charge a balance transfer fee of at least 3% of the balance you transfer — an amount that can build up if you have a large amount of debt. Look for cards that have low – or no – balance transfer fees, and more of your money can go to servicing your debts.
· Map Your Repayment Plan With A “Debt Collapse” Or “Debt Repayment Snowball
There are two main schools of thought when it comes to paying off credit card debt.
The first method, the “debt avalanche” method, focuses on paying off your cards with the highest interest rates first, and then, once you pay them off, switch to the ones with the lowest interest rates. This method makes a lot of sense mathematically since you’re shortening the amount of time you pay off the credit cards that charge you the most money.
Another tactic is the “debt snowball” method. This is for people who struggle to stick to a debt reduction plan when there seems to be no end in sight.
Published by personal finance expert Dave Ramsey, The Debt Snowball focuses on paying off your small debt first, then your smallest balance, and so on. According to some behavioural economists, eliminating small debt early in the payment process can be a worthwhile mental reward that helps some people stay motivated to commit to it.
This isn’t quite as cost-effective as paying off higher-interest debt first, but if it gives you the incentive to step back and pay off your debt, it may be the preferred course of action.
· Get a Personal Loan
If you don’t have excellent credit, your best option may be to apply for a personal loan and pay off your credit card debt in full. You can search for an online lender or check with a local bank or credit union to see if they offer personal loans (also called debt consolidation loans). You’ll still pay interest, but it’s likely to be at a lower rate since the APR of a personal loan is often several percentage points lower than a credit card’s APR. You’ll also have to make one debt payment each month instead of having multiple credit card accounts and due dates to keep track of.
· Reduce Spending By Tightening Your Budget
Nobody likes hearing this, but one of the easiest ways to pay off debt quickly is to spend more money each month, and that means finding new ways to save, like cancelling your cable TV or reducing the number of nights you order out. Anytime you can pay more than the minimum payment for your credit card bills, you’re one step closer to getting out of debt.
· Contact the Credit Advisory Service For Professional Assistance
If you’ve already tried the tactics in this list and are still struggling to get control of your credit card debt, it might be time to call the professionals. Nonprofit credit counselling services will consider your credit card debt in the context of your other financial obligations, such as a home equity loan, line of credit, car repayment, or student loans, and work with you to create a payment plan. Some even negotiate with credit card companies to get you a lower interest rate and offer a financial literacy education that can prevent you from falling back into the debt trap in the future.
If your financial situation is particularly poor, and you are considering bankruptcy, it is indeed necessary to undergo credit counselling before pulling the trigger. Taking this step on your own may lead to the realization that you can overcome your debt with a payment plan, not bankruptcy, after all.
Conclusion – How to pay off credit card debt fast
With the job market improving, wages rising, and emergency funds in many people’s bank accounts increasing, the present moment could be a great opportunity for you to pay off all your outstanding debts or at least start paying off your balances.
It may not be quick or easy, but many people who are successful in sticking with a debt management plan say that getting comfortable once they are debt-free is worth it.
If you have a lot of credit card debt, there is no time like now to work on getting rid of it.