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3 Reasons You Can’t Pay Off Credit Cards Fast

These three factors can make it almost impossible to pay off credit card debt efficiently.

Pop Quiz

At an average APR of 15%, how long would it take to pay off a $500 credit card debt with minimum payments?

a) 14 months

b) 24 months

c) 34 months

d) 44 months

Reveal Answer

Tip: Most credit cards have a minimum required payment limit of $15. For a small debt like this one at $500, you’d pay the $15 minimum for 44 months, with $150.87 in total interest charges

d) 44 months

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Credit cards are a double-edged sword. They offer convenience and purchasing power, but they also come with high interest charges that can leave you trapped. As your balances go up, so do the minimum payment requirements on your bills. But even though you pay month after month, you never seem to get anywhere.

WHY?

Reason No. 1: Minimum payment structures aren’t designed to be efficient

Looking carefully at the statements when you pay off credit cardsCredit cards are revolving debt, meaning the monthly payment requirement changes based on how much you charge. Creditors calculate the minimum required payment by taking a small percentage of your current balance. Most cards have a payment schedule around 2.5% of the balance you hold at the end of each billing cycle.

Meeting this requirement will keep your debts out of collections and help you avoid credit damage. But it won’t help you get out of debt quickly. In fact, the minimum payment schedule keeps you in debt as long as possible to generate more revenue for creditors. Interest charges are how a credit card company earns profit, so they would prefer you to stay in debt longer.

Reason No. 2: High interest charges eat up at least half of each payment

While the minimum payment requirement on your card is around 2.5% of your balance, the interest rate is much higher. Average interest rates on credit cards today are around 15% and rates on reward cards are higher than that. If a card hard 22% APR and the minimum payment is only 2.5%, how much of each payment goes to interest charges?

It equals out to about half or more, depending on your interest rate. If you have a low interest rate card at 15% APR, roughly half of every minimum payment covers interest charges. Once you hit 20% APR, then about two-thirds of every payment goes to interest charges.

This combination of low minimum payments and high rates are the primary factors that make it hard to repay debt. They create the debt repayment treadmill, where you diligently make payments but never seem to get anywhere. Then if you add in the next factor on top of that, things get even harder.

Reason No. 3: Penalties only make repayment more difficult

While the first two factors make it tough to pay off credit cards efficiently, penalties can make it downright impossible. There is no shortage to the penalties creditors can apply to your account. It starts with late fees, then moves up to penalty APR if you miss a payment by more than 30 days.

Penalty APR can be double or more your regular high interest rate. As a result, almost all of your payment covers interest charges. You’ll be lucky to decrease your debt at all with penalty APR in effect. By law, the creditor must restore the original interest rate once you make six consecutive payments on time. But this can be tough once you’re already behind.

Credit card penalties only make a bad situation worse when it comes to paying off credit card debt. Once a creditor starts to apply penalties, it can be a slippery slope and you can struggle to recover on your own.

4 Ways to Pay Off Credit Cards Faster

#1: Pay more than the minimum requirement

If you pay off a credit card balance in big chunks, you can get to zero faster. Paying a larger amount means you pay off more of the principal (original debt owed) with each payment. If you implement a debt reduction strategy, you can save money and get out of debt as quickly as possible.

Of course, paying more than the minimum requirement can be tough if you’re already struggling to get ahead of your debt. In this case, you may want to use one of the solutions below, because you can get out of debt faster with a payment that’s no higher than what you pay now.

#2: Pay off your credit cards with a credit card

If you use a credit card balance transfer, you can turn high interest credit card debt into no interest debt. You get a new credit card that offers 0% APR over an introductory period. This gives you a certain number of months to pay off your debt interest-free. That means 100% of every payment you make goes to paying off the debt. It can significantly accelerate how fast you can pay off credit cards. Just be careful with balance transfer fees and make sure you eliminate the debt for the introductory period ends.

#3: Pay off credit cards using a loan

You can take out a debt consolidation loan that allows you to pay off your credit cards all at once. This converts high interest rate credit card debt into a low interest rate unsecured personal loan. In most cases, the payment you make will be less than what you pay now. However, you can get out of debt faster because there are less interest charges.

#4: Enroll in a debt management program

Credit users who enroll in a debt management program typically reduce their total monthly payments by 30 to 50%. You simply work with a credit counseling agency to find a payment that works for your budget. They consolidate your debt and negotiate with your creditors to reduce or eliminate interest charges. As a result, most people complete the program within 60 payments even though they pay less each month. Credit counselors can also negotiate to stop future penalties, which also makes it easier to pay back what you owe.