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How to pay off credit card debt faster with fewer 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, often 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.
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 balance of $15,654. Total U.S. credit card debt topped $1 trillion in early 2018.
5 Solid Answers for How to Pay Off Credit Card Debt Faster
|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 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 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|
Need help deciding which solution is the best choice for your unique financial situation? Talk to a certified consumer credit counselor now.
#1: Lower interest rates, increase payments
The first way to pay off your credit cards faster is to use extra cash in your budget to pay it off in the biggest chunks possible. But first you call each of your creditors to negotiate lower interest rates on your credit cards. With lower APR, more of each payment you make goes to principal repayment, rather than accrued interest charges.
Creditors are more likely to negotiate lower rates with you if:
- You’ve been a loyal customer who pays on time consistently over many years
- Your credit score is higher than when you applied for the card
- Your balance is current right now
You call the general 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 current average credit card interest rates for each card you hold. This gives you a baseline to negotiate.
Once you lower the rates, you implement a debt reduction plan. This is where you organize your credit cards to prioritize them for repayment. You make minimum payments on all cards except one; for that one card, you make the biggest payment possible with all the extra cash flow in your budget. Budgeting spreadsheets offered by companies like Tiller can make this easier. They even have a dedicated spreadsheet for debt reduction. You can try Tiller free for 30 days.
The once you pay off the first card, you move on to the next. Each debt you eliminate frees up more cash for tackling the next debt. You accelerate debt repayment until you reach zero on all your cards.
#2: Use a credit card to pay off debt
It sounds a little counterintuitive, 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 18 to 24 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.
#3: Get a loan to pay off credit cards
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 10%, which is much lower than most credit cards. 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. You typically want to aim for a term of less than 60 payments. Any less may be too expensive for your budget, while any more would take too long, leading to higher costs.
#4: Work out a debt management plan with a credit counselor
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, the 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.
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.
#5 Settle your debt for less than you owe
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.
3 Tips on How to Pay Off Credit Card Debt Effectively
Tip #1: 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 #2: 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 doesn’t work, you can move onto another without even waiting for it to fail.
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 #3: 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
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.
Want to know the best way to pay off credit card debt in your unique financial situation? Talk to a certified credit counselor for a free evaluation.
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 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 longer term personal loan. 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 huge credit card debt (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.
Article last modified on May 29, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How to Pay Off Credit Card Debt - AMP.