Credit card debt in the United States is soaring – with Americans carrying more than 841 Billion dollars on their accounts. That's down slightly since this time last year, but it's not likely to continue that trend, with the Fed jacking up interest rates in an attempt to slow inflation.
Ideally, you want to pay your monthly statement in full and never have to pay additional fees. However, almost half of all American households carry a monthly balance. That means they're paying for their purchases anywhere from one and a half to sometimes three or even four times. Not only is a gallon of milk a dollar higher than a few years ago, but now you're paying for it three times over 10 years!
Credit card debt accumulates each month with interest and penalties until the person ultimately pays off the balance.
If that includes you, know there are strategies for how to pay off credit card debt that will help you become debt free quickly.
How To Pay Off Your Credit Card Debt Quickly
There are many ways to pay off credit card debt, although some are better than others. Choose what works best for your lifestyle and work to get your payments made in full.
1. Consolidate Debt
Combining your debts helps by transferring several higher-interest balances into one loan with a lower rate. Consolidating debts lets you settle your credit debts faster without increasing payment amounts.
Similarly, if your credit score is good and your debts are overwhelming, you can opt to merge them all into one account. This way, you can make one monthly payment and chip away at the balance.
2. Borrow Money From Family or Friends
Do you have close friends or family members who could loan you money without hurting their own finances? Consider asking to borrow enough money to help pay off your high-interest debts. Assuming they'll lend you money without charging interest, you could set up a monthly payment plan with them. That way, you'll be able to pay off the debt without accumulating additional monthly fees.
3. Use a Balance Transfer Credit Card
A balance transfer involves transferring an existing credit card balance to another card. A balance transfer can be an excellent method to pay down credit card debt and save money with a lower interest rate. This also means you'll pay more toward capital rather than most of your payment going toward interest.
4. Pay Off High-interest Rate Debts First
Suppose you have more than one unpaid credit card balance. In that case, you need to analyze each one and identify the debt with the highest interest rate. Focus on paying that card off first to avoid the extra expense incurred with the interest fees.
This is referred to as the “Avalanche method.” After paying off the highest interest card, you'll have more money to put toward the next highest interest card and pay it off even faster.
5. Use the Snowball Method
Similar to the avalanche method, the “Snowball method” involves paying off the credit card with the smallest balance first. Once the first balance is paid off, you can apply that payment toward the next smallest balance and pay it off even faster. As you pay off each card and use that money toward the next card balance, the amount you can pay will increase until all your debt is paid in full.
6. Use Your Savings
If you've already built up an emergency fund, and have a separate savings account for irregular expenses, consider dipping into this cash to get out of debt quickly.
Any money you're currently putting toward your savings account can be rerouted to concentrate on becoming debt free. Using your savings is an especially useful plan if you're not currently saving for something in particular, like school tuition. The money you'll save by not paying high-interest credit card fees will be more than the interest you might have made in your savings account.
7. Cut Down on Your Expenses
You can speed up the process of paying off debt by freeing up some cash each month. Look at the previous 30 days' spending to see what you can do without. Use the money you save to put toward your credit card debt.
For example, if you usually spend $1,000 a month on groceries and decide you can drop it to $850, you'll have an extra $150 each month to put toward your debt.
8. Refinance Your Mortgage
If you own your own home, you may be able to refinance your mortgage to secure a lower monthly payment. Doing so could free up enough cash each month to help pay off your credit card debt much faster.
Keep in mind that if you're still required to pay mortgage insurance, this may not work for you. Consider all expenses involved before taking this route. Also, consult someone other than your lender since they have a vested interest in your choice.
9. Tap Into Your Home Equity
Do you have equity in your home? Similar to refinancing, you may consider getting a home equity line of credit and using it to settle credit card debts. It is advantageous to have a home equity line of credit. It charges a lower interest rate than what your card may be offering.
Note that you may incur expenses in setting up the line of credit. Despite the costs, the positive side of home equity is that the interest payments are primarily tax-deductible.
10. Paying More Than the Minimum
According to the Consumer Protection Bureau report, you should pay as much of the credit card balance as possible each month. Although it's tempting to send just the minimum amount due, making a larger monthly payment will lower the card balance. That reduces the interest that accrues over time. If you can't pay the balance in full, pay as much as you can each month.
11. Divert To Cash Only Spending Habit
One way to help avoid accumulating even more credit card debt is to put the cards away and only use cash to pay your expenses. If cash isn't an option, commit to using only your debit card whenever possible.
12. Take Out a Personal Loan
If your balance is high and you won't be able to pay it off in the near future, you may be better off getting a personal loan. Be sure to search for one with a lower interest rate than your credit cards. You also want to be sure you can use it to pay off your card balances. This way, you can concentrate on making one monthly payment rather than having several high-interest card balances.
13. Contacting a Credit Counseling Service for Help
If none of these tactics are options, consider getting counseling services from a professional financial consultant. They can help you create a payment plan and may even be able to negotiate a lower interest rate for you.
In addition to teaching you how to pay off credit card debt, they may also offer financial literacy education to help you stay out of debt in the future.
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This article was produced and syndicated by Wealth of Geeks.
Featured Image Courtesy of Shutterstock.
Samuel is a tech enthusiast and believes in the potential behind the latest innovations like the crypto space. He loves researching different topics and gaining knowledge every day. Samuel is also an experienced blockchain reporter who believes that it's only best to ensure everyone has access to unbiased information globally. This belief is one of the things that pushes him to write more and help shed light on different topics.