5 effective strategies for paying off credit card debt
Anyone who’s had credit card debt knows this isn’t a picnic. You do your best to reduce it, only to see new bills and interest charges slowing your progress.
Fortunately, there are several strategies that make paying off credit card debt easier. The voucher can keep you motivated, save you money on interest, and get you out of debt sooner.
Remember, for any of these strategies to be effective, you need to avoid increasing your debt and devote as much disposable income to it as possible.
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1. Debt snowball
The debt snowball is about paying off the credit cards with the lowest balances first. Let’s say you have four credit cards with the following balances:
You’ll start by making minimum payments on the cards with the three largest balances and pour the rest of your disposable income onto the card with the $ 250 balance. Once that card is paid off, you repeat the process with the next smallest balance, and so on.
This is a popular method of paying down debt because paying off debt is both a great reward and an incentive to keep going. This works especially well if all of your credit cards have similar interest rates.
2. Debt avalanche
The debt avalanche involves paying off the credit cards with the highest interest rates first. You would make minimum payments on every card except the one with the highest APR, where you would pay as much as possible.
This method is a good choice if your credit cards have significantly different interest rates because it will save you the most money. For example, if you have 0% APR rate credit cards, it would make sense to hold onto them for last and focus on the cards you are charged interest on.
3. A debt repayment application
There are several highly rated debt repayment apps available for both Apple and Android devices. Here are some examples:
- Debt Payoff Planner allows you to enter your debts and the amount of your monthly payment. It then offers payment plan options and shows which one saves the most money.
- Qoins rounds up your transactions and uses the money for an additional monthly debt payment.
- Digit calculates an amount you can save based on your income and spending habits, and then it automatically saves the money for you.
Some apps (but not all) have small monthly fees. If you find an app you love, this might be just what you need to get your credit card debt under control.
4. A balance transfer
A balance transfer involves moving a balance from one credit card to another. It allows you to save on interest charges if the new credit card has a lower interest rate than the original.
There are balance transfer cards with 0% APR specifically for refinancing credit card debt. If you open one of these cards, you can transfer your credit card debt and pay it off without interest during the 0% APR period. Depending on the card, this introductory period can last 12 months or more.
This type of credit card can save you quite a bit of money, but there are a few things you should know first:
- You usually need good credit, i.e. a FICO® score of at least 670, to qualify for a balance transfer card.
- Most cards charge a balance transfer fee of between 3% and 5%.
- The total amount transferred, plus the balance transfer fee, cannot exceed the credit limit of the card. Some balance transfer cards also have separate transfer limits.
5. A debt consolidation loan
Debt consolidation loans are a type of personal loan for paying off debt. After you get the loan, you use it to pay off your credit card balances. In the future, all you have to do is make your loan repayments.
Since personal loans often have lower interest rates than credit cards, you can save money on interest as well. An even more important advantage of this method is the structure it provides.
When you pay credit cards, the amount you pay is largely up to you. You only have to make relatively low minimum payments, and there is no set deadline for paying back what you owe.
With a loan, you have a fixed monthly payment and a loan term. If you’re having trouble paying as much as you should on your credit cards, then a tighter loan structure could keep you on track.
These are the most effective and popular strategies for paying off credit card debt. Now that you know what your options are, you can choose the one that works best for your situation.