How to pay off credit card debt faster with less money wasted on interest charges.
Wondering how to pay off credit card debt fast? Let’s face it – credit card debt can wreck your budget. When you overcharge, the bills take up more of your income, usually leaving you with little to cover other expenses. At the same time, every time you carry a balance over from one month to the next, you face high-interest charges. These can eat up over half of your minimum payments, even on a “low-interest rate” credit card.
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At 15% APR, how much of each minimum payment does it take to cover accrued monthly interest charges on a $1,000 credit card debt?
The minimum payment requirement for a $1,000 balance would be $25. Of that amount, $12.50 covers accrued monthly interest charges. At 20% APR, $16.67 goes to interest charges, meaning only 1/3 of your payment goes to the actual debt.
Fact: The average American household that uses credit cards currently carries a balance of $15,482. Total U.S. credit card debt topped $1 trillion in early 2018.
5 better, faster, easier ways to pay off credit card debt
|Solution||Product You Need||Benefits||Barriers|
|Lower interest rates, increase payments||Formalized budget||Eliminates debt within your budget; doesn’t require additional borrowing||Success depends on the willingness of your creditors to lower your rates|
|Use a credit card to pay off debt||Balance transfer credit card||Offers 0% APR promotion period for interest-free debt repayment||Limited time (6-18 months) before regular rate applies; requires good credit|
|Get a loan to pay off credit cards||Unsecured personal debt consolidation loan||Provides low-interest fixed payments that may be less than what you pay now||Requires good credit and a debt-to-income ratio of 41% or less|
|Get professional help through a credit counseling agency||Debt management program (DMP)||Team negotiates rates on your behalf; may reduce total monthly payments||Credit cards included in the program are frozen; you can’t apply for new credit while enrolled|
|Settle your debt for less than you owe||Debt settlement program (DSP)||Get out of debt for a portion of what you owe||Each debt settled creates a 7-year negative credit report item|
Finding the best way to pay off credit card debt
There’s more than one way to pay off credit card debt. Finding the best solution depends on your budget, credit and the status of your debts. There are five basic solutions for how to pay off credit card debt when minimum payments aren’t working. This slideshow goes through each solution and explains the cost and time it will take to become debt free. We also explain when each solution is best used based on how much debt you have, the status of that debt and your credit score.
1. Solution 1: Lower interest rates, increase payments
Recommended debt level: Less than $3,000
Recommended credit score: Good
The product you need: Budgeting tool
Fees: Varies based on the budgeting tool chosen
APR: Negotiated with individual lenders
Total Cost: Based on APR and number of months interest is applied
Time to payoff: 12-18 months
Payments: As high as you can comfortably afford
The first way to pay off credit cards faster is to use the extra cash in your budget to pay it off in the biggest chunks possible. First, call each of your creditors to negotiate lower interest rates. With lower APR, more of each payment you make goes to principal, rather than accrued interest charges.
Creditors are more likely to negotiate lower rates if:
- You’ve been a loyal customer who pays on time consistently
- Your credit score is higher than when you opened the account
- Your balance is current
Call the customer service line for each credit card. They may pass you up to a manager or supervisor who is authorized to negotiate lower rates. It’s a good idea to know the current average APR for each card you hold. This gives you a baseline to negotiate.
Once you lower APR, you implement a debt reduction plan. You organize your credit cards to prioritize them for repayment. You make minimum payments on all cards except one; for that card, you make the biggest payment possible using all your extra cash flow. Budgeting spreadsheets from companies like Tiller can make this easier. They even have a dedicated spreadsheet for debt reduction. You can try Tiller free for 30 days.
This solution should only be used for debt amounts of less than $3,000. But even that amount is large to pay back with high credit card interest charges. If you have good credit, consider a balance transfer.
2. Solution 2: Use a credit card to pay off debt
Recommended debt level: Less than $5,000
Recommended credit score: Excellent
The product you need: Balance transfer credit card
Fees: Balance transfer fee per transfer: $3-3% of each balance transferred
APR: 0% promotional rate, then regular APR for balance transfers applies
Total Cost: Depends on the promotional APR period and time to payoff
Time to payoff: 6-18 months
Payments: As high as you can comfortably afford
It sounds a little counter-intuitive, but you can use a credit card to solve problems with credit card debt. You transfer your existing balances to a balance transfer credit card that offers 0% APR on balance transfers. The higher your credit score, the longer the promotional APR will be. With excellent credit, you may be able to find cards that offer 0% APR for up to 18 months.
This allows you to pay off credit card debt interest-free for a time. That way, every dollar of each payment you make goes to reducing the principal debt you owe. So, for instance, let’s say you have $10,000 in debt to pay off. You get a balance transfer credit card that offers 0% APR for 18 months. With payments of $555 per month, you can be debt free before the introductory period ends.
Just be aware that if you don’t pay off the balance before the promotional rate ends, the standard APR for balance transfers will apply. In other words, you’ll be right back to a high interest rate. That’s why your payments need to be as high as possible to pay off everything before your 0% APR period ends.
3. Solution #3: Get a loan to pay off credit cards
Recommended debt level: Less than $25,000
Recommended credit score: Good
The product you need: Unsecured personal debt consolidation loan
Fees: Origination fee, usually 1-5% of the total amount borrowed
APR: Currently around 6-13% APR
Total Cost: Depends on APR and term of the loan
Time to payoff: 24-60 months
Payments: May be lower than total payments individually
If you have too much debt to eliminate during a balance transfer introductory period, the next option is a loan. You take out a personal debt consolidation loan and use the funds to pay off your credit card balances. Personal loans tend to have interest rates that are less than 15% as long as you have good credit. Loan APR is usually lower than the APR the same consumer can qualify for on a credit card. A higher credit score allows you to qualify for the lowest rates possible.
In general, you should only use an unsecured debt consolidation loan to consolidate credit card debt. You can take out a home equity loan to pay off credit card debt, but it’s not advisable. This essentially converts unsecured credit card debt into secured debt. You increase your risk because if you default on a home equity loan, you can put yourself at risk of foreclosure.
Still, most people with good credit can qualify for an unsecured consolidation loan at a good interest rate. Most lenders only offer terms up to 48 months, although you may be able to find a lender that offers 60.
Choosing a longer term will lower your monthly payments, which makes this a potentially good solution if you’re having trouble making ends meet. You may be able to get out of debt faster, even though you pay less each month. Just be aware that choosing a longer term increases your total cost.
4. Solution #4: Work out a debt management plan with a credit counselor
Recommended debt level: $10,000-$100,000+
Recommended credit score: None (works with any credit score – even bad ones)
The product you need: Debt management program through a consumer credit counseling agency
Fees: Vary by state, but capped nationwide at $79; average fees are around $40
APR: 0-11%, negotiated with individual creditors
Total Cost: Reduces total credit card payments by up to 30-50%
Time to payoff: 36-60 months
Payments: Might be lower than total payments individually
If you don’t have good credit or you have too much debt to pay off with a debt transfer or consolidation loan, call a credit counselor. They can help you enroll in a debt management program. This is a credit card debt repayment plan specifically designed for people with lower credit scores and higher debt levels.
You work out a monthly payment you can afford with the credit counselor. Then they call your creditors to get them to accept the modified repayment schedule. In addition, they negotiate to reduce or eliminate interest charges, as well as stopping future penalties. In most cases, enrollment reduces your total monthly payments by 30 to 50%. Programs usually run anywhere from 36 to 60 months. You still owe your original creditors. You just make one payment to the credit counselor, then they distribute the payment amongst your creditors as agreed.
Since a credit counselor administers the program and acts on your behalf, your credit score is not a factor for qualification. Even if you have rock-bottom bad credit, you can get approved. This can even work for debts that have already passed to collectors, as well as unpaid medical bills and payday loans. However, it’s less effective when used with debt collections, since most collection accounts don’t accrue new interest charges.
5. Solution #5: Settle your debt for less than you owe
Recommended debt level: $10,000-$100,000+ (best for debts in collections)
Recommended credit score: None (works with any credit score – even bad ones)
Product you need: Debt settlement program administered through debt settlement company
Fees: Percentage of each balance settled, can be as high as $500-$3,000
APR: n/a (interest charges do not matter during settlement
Total Cost: Varies based on settlement agreement; average settlement is 48% of amount owed
Time to payoff: 12-48 months
Payments: Monthly set aside typically significantly lower than total individual payments
If you don’t care about damaging your credit score and simply want a fast, low-cost way out of debt, consider debt settlement. A debt settlement program is designed to help you get out of debt for a percentage of what you owe. Average settlements usually equal out to roughly 40% of what you owed. In addition, they can help you get out of debt in as little as 12 to 24 months.
You enroll in the program through a debt settlement company. They open a monthly set aside account to collect funds to make your settlement offers. They usually tell you to stop making all credit card payments. You divert those funds into your settlement account to generate the cash you need to make your offers.
Once you have enough funds available, the company sends their debt negotiation team to negotiate with your creditors. They get each creditor to agree to discharge your remaining balance in exchange for partial payment. This usually works best when most of your debts are already in collections.
Each debt you settle creates a negative item in your credit report that remains for seven years. After seven years, the settled account is removed from your credit file, so it no longer affects your credit score.
Need help deciding which solution is the best choice for your unique financial situation? Talk to a certified consumer credit counselor now.
Why you can’t make any headway in paying off credit card debt
There are three things that are stopping you from paying off your credit card debt efficiently. If you’re making minimum payments and getting nowhere fast, this is why:
- High-interest rate
- Low minimum payment requirements
The first two points directly counteract each other, making it almost impossible to make any headway with debt repayment using minimum payments. Consider that average APR on a credit card tends to range between 16-18%. That means the periodic interest rate (the rate charged each billing cycle) ranges from 1.3% to 1.5%. Meanwhile, the minimum payment requirements on most credit cards range from 2-3%.
So, you pay off 2% of your balance with each minimum payment you make. But then 1.3-1.5% of that payment is used to cover accrued monthly interest charges. In reality, you pay off less than 0.75% of the principal (your actual debt owed) with each payment you make. This is why your balances never seem to go down.
And it’s even worse if you make a payment late and penalties get applied. Penalty fees can stack up quickly and penalty APR is even worse. This is a rate that gets applied to your balance if you are more than 60 days late with a payment. Penalty APR averages at 29.99%. That means the periodic penalty rate is around 2.5%.
In other words, if your minimum payment requirement is 2% of your balance and the periodic penalty rate is 2.5%, then your balance just goes up even if you make your payments and stop charging. It takes 6 consecutive on-time payments to end penalty APR and restore your original rate.Back to top
Smart tips to boost your debt repayment strategy
Tip #1: Never rely on minimum payments
If you think you can get out of debt making only minimum payments, think again. Minimum payment schedules are not designed to get you out of debt. Interest charges are one of the main ways that credit card companies make their money. So, it’s in their best interest for you to stay in debt as long as possible. That’s more revenue for them!
But that’s bad for you because minimum payments basically mean you’re throwing money away on interest charges. If you use one of the five solutions we describe above to eliminate your debt, then you free up that cash for other things, like saving.
At the very least, you always want to pay as much as you can afford to pay off your debt as quickly as possible. But really, using the solutions above will usually make it faster and easier to pay off your debt.
Tip #2: Stop charging!
The biggest mistake that most people make when paying off credit card debt is that they don’t stop making new charges. If you’re dumping water into the boat at the same time you try to bail it out, you’ll never get anywhere.
This may sound like common sense, but it can be hard to do in practice. This is especially true for balance transfers and consolidation loans. These two solutions mean you’ll have zero balances again on all your credit cards. It will be tempting to make charges, so you can earn cash back or just to pick up something you need. But don’t do it!
When you consolidate, balance your budget so you can cover all your monthly bills and necessary expenses with cash. Don’t start using your cards again until you can pay off any charges in full each month.
Note that when you enroll in a debt management program, the creditors freeze your accounts, so you can’t make any charges. You also can’t apply for new credit cards during enrollment. This can be annoying, but it can also be beneficial to break a credit habit if you can’t stop charging.
Tip #3: If one solution isn’t working, try another
The nice thing about all these debt repayment options is that nothing is set in stone. If you transfer balances but can’t pay off the debt during the 0% APR introductory period, take out a loan. As long as the debt consolidation loan you get is unsecured, you can include it in a debt management program. Basically, if one option for repayment isn’t working, you should move onto the next. And you shouldn’t wait for the first solution you try to fail.
As soon as you feel like there’s trouble on the horizon again, adjust your strategy. But in any case, try to avoid missing payments or falling behind. Once your creditor writes off a debt due to nonpayment, it limits the options you have for relief. No matter what, if your debts are current, you have options for eliminating them quickly without damaging your credit.
Tip #4: You may be able to eliminate other types of debt, too
Many solutions to pay off credit card debt can be used to pay off other types of debt, too. This is particularly true with a debt consolidation loan or debt management program. In both cases, you may be able to include:
- Unpaid medical bills
- Payday loans
- Store credit accounts for furniture or electronics
- Other unsecured personal loans
Debt consolidation loans can also include things like unpaid federal or state back taxes. The more debts you include in your elimination strategy, the better. Ideally, the only thing left after you use one of these repayment strategies should be your mortgage, auto loans and student loans. For the latter, you can use a separate repayment strategy to eliminate those debts faster, too.
Tip #5: Know when it’s time to Say Uncle
Let’s be honest. Nobody wants to declare bankruptcy, but sometimes it’s the best option. Unfortunately, most people wait too long to pull the plug. Our resident expert, Steve Rhode – the Get Out of Debt Guy – is a huge proponent of filing for bankruptcy so you can turn the page and get a fresh financial start.
“Whether it’s out of pride or shame or fear, most people wait too long to file for bankruptcy and it’s usually for emotional reasons instead of practical, financial ones,” Rhode explains. “The truth is, you can actually damage your credit worse by trying debt solutions that don’t work, than the damage you would have had if you just filed for bankruptcy. Bankruptcy can also help you get to a fresh start sooner. Instead of 2-5 years spent struggling to get out of debt, if you qualify for Chapter 7, you could be debt-free this year. That gets you to rebuilding much faster than if you muddle along because you don’t want to file.”
So, while these solutions for paying off debt can be beneficial, if you’re still not making headway, then it may be time to Say Uncle. If you’re missing payments and more and more of your accounts are becoming delinquent or getting charged off, then don’t wait to file.
Don’t wait to get the help you need. Talk to a certified credit counselor to find the best way to pay off credit card debt in your situation.
How to pay off credit card debt in every situation…
How to pay off credit card debt fast
Interest-free payments are the fastest way to pay off credit card debt. If 100% of every payment you make goes to eliminating principal, you can pay off credit card debt fast. The easiest way to get interest-free payments is to use a balance transfer credit card. This will give you 0% APR for 6-18 months after you open the card. However, once the promotion period ends, regular interest charges will apply to whatever balance you have left. So, you need to only transfer as much debt as you can afford to eliminate.
How to pay off credit card debt with no money
If the minimum payment requirements for your credit card debts are too high, consolidate! Both debt consolidation loans and debt management programs often lower your monthly payments. However, since they also reduce your interest rates, you can get out of debt faster even though you pay less.
If you use a debt consolidation loan, then the term you choose determines the monthly payment requirement. Choosing a longer term will lower the monthly payment. Most lenders will let you go up to a 48 or 60-month term on a consolidation loan. This can significantly cut your monthly payment requirements.
With a debt management program, most people who enroll enjoy lower monthly payments, too. Data shows these programs reduce your total monthly payments by up to 30 to 50%.
How to get out of credit card debt without paying
If you can prove a debt is not yours to pay, then you can get out of credit card debt without paying. This usually relates to collection accounts. Make sure you legitimately owe a debt that a collector says you owe. They often confuse customers as they try to hunt someone down. So, if you can show that a credit card debt in collections is not yours, you can tell them to cease and desist.
If you have absolutely no money to pay off credit card debt you legitimately owe, then you need to declare bankruptcy. This is the only way to get out of debt without paying anything at all. And even in this case, the court will try and find a way for the creditor to recoup at least some of their losses. They will try to liquidate assets if you go through Chapter 7 or set up a court-ordered repayment plan in Chapter 13. So, even in bankruptcy, have the right expectations about getting out of debt carte blanche.
How to pay off $5,000 in credit card debt
Balance transfers are usually the best option in this situation. Even with fair credit, you can qualify for a card that offers 0% APR for at least 6 months. That gives you six months to pay off your debt interest-free. To eliminate the debt in full before the regular APR for balance transfers kicks in, you’d need payments of about $835. But even if you couldn’t pay that much, you could make a significant dent in your balance before APR applies.
If you don’t have good credit and can’t get a 0% APR offer, then consider a debt consolidation loan.
How to pay off $10,000 in credit card debt
This is usually best done with a debt consolidation loan. This is a low-interest fixed-rate loan that gives you funds to pay off credit card debt. You pay off all your balances, leaving only the loan to repay. Choose a term that offers monthly payments that work for your budget. A shorter term will help you save money on interest charges. A longer term gives you lower monthly payments.
For this low amount of debt, you really want to go for the shortest term possible. If you can afford payments around $450, then you should be able to get a 24-month consolidation loan. This would be the fastest, most cost-effective way to eliminate your credit card debt.
How to pay off $20,000 in credit card debt
Again, the best choice for how to pay off $20,000 in credit card debt is usually a debt consolidation loan. However, with this amount of debt, you may need to opt for a personal loan with a longer term. In this case, a 3 or 4-year term may be the best solution to give you lower monthly payments, while still allowing you to get out of debt faster. It’s also worth noting that this is only the best solution if you have good credit (700 FICO or higher).
If not, then you may need professional help to consolidate your debt. In this case, contact a consumer credit counseling agency to see if you are eligible for a debt management program. It will allow you to qualify for reduced or eliminated interest charges, even with less than perfect credit. Again, this should help lower your monthly payments and get out of debt faster at the same time.
How to page off over $50,000 in credit card debt
If you owe more than $50,000, then do-it-yourself debt consolidation solutions probably won’t work. That means you can skip balance transfers and debt consolidation loans because they won’t be effective.
For huge credit card debt balances, you need some help to reach zero. You have two options for professional debt help:
- If you want to pay back everything you owe to avoid credit score damage, you should use a debt management program.
- If you don’t care about credit damage and simply want a fast exit to avoid bankruptcy, go for debt settlement.
Both of these programs can help you eliminate high volumes of debt within 4-5 years. In fact, they can often help with really huge credit card debt balances – $100,000 or more. Although some debt settlement and credit counseling agencies cap their programs at $100,000, there are companies that have no cap.
If you have high volumes of credit card debt that you can’t eliminate on your own, Debt.com can help you connect with the right solution to become debt free.
More questions about how to pay off credit card debt
Q:Can I use a secured loan to pay off credit card debt?
That’s because a home equity loan is secured. It uses your home as collateral. So, if you can’t keep up with the payments and you default, the lender can foreclose on your home. It’s generally not worth that increased risk just to pay off a few credit cards.
Q:Can you go to jail for not paying your credit cards?
Q:Can you use off one credit card to pay off another?
Average cash advance APR is 25.99%. At that rate, you may not even pay off accrued monthly interest charges with a minimum payment. In other words, your balance can go up even if you’re making payments on the cash advance each month.
It usually ends up costing more in interest charges than even the late fees you would have incurred for not paying the bill. It’s just not worth it.
Q:How long do I have to pay off a credit card balance?
However, if you’re wondering how long you have before the debt goes to collections, the answer is generally 9 months of nonpayment. But there are other major negative events along the way before that 9 months.
Q:Should I use a 401(k) or IRA to pay off credit card debt?
The risk of withdrawing retirement funds increases with age. So, if you’re still in your 20’s and thinking about this option, it’s less bad than it is for someone in their 40’s… but it’s still bad.
Q:What happens if I stop paying my credit cards?
There are also penalties that get placed on your account in the runup to charge off. These can significantly increase your total balance owed before the debt goes to collections.
Q:Which credit card should I pay off first?
Article last modified on October 23, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How to Pay Off Credit Card Debt - AMP.