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Wondering how to pay off credit card debt faster? Let’s face it – credit card debt can wreck your budget. When you overcharge, the bills take up a larger percentage of your income, leaving you with little to cover other expenses. At the same time, every time you carry a balance 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.
Jump to one of these sections:
|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||An 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 seven-year negative credit report item|
There are three things that stop you from paying off your credit card debt efficiently. If you’re making minimum payments and getting nowhere fast, here’s why:
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 17 to 18%. That means the periodic interest rate (the rate charged each billing cycle) ranges from 1.4% to 1.5%. Meanwhile, the minimum payment requirements on most credit cards range from 2 to 3% of the balance.
So, you pay off 2% of your balance with each minimum payment you make. But then 1.4 to 1.5% of that payment is used to cover accrued monthly interest charges. In reality, you pay off less than 0.6% of the principal (your actual debt owed) with each payment you make. Therefore, your balances never seem to go down.
It’s even worse if you make a late payment and the issuer applies penalties. 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 six consecutive on-time payments to end penalty APR and restore your original rate.Back to top
If you think you can pay off credit card 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!
This situation is bad for you, because minimum payments 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 building savings.
You always want to pay as much as you can afford, so that you pay off your debt as quickly as possible. Using the solutions above will usually make it faster and easier to pay off your debt.
The biggest mistake that most people make when they pay off credit card debt is that they don’t stop charging the card. 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 avoiding use of the card 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 pick up something you need. 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.
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. Don’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.
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:
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 student loans, you can use a separate repayment strategy to eliminate those debts faster, too.
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 two to five 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.
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 six to 18 months after you open the card. However, once the promotion period ends, regular interest charges will apply to whatever balance you have left. Only transfer as much debt as you can afford to eliminate.
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%.
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 mix up customers as they try to hunt someone down. 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.
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.
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.
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.
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:
Both programs can help you eliminate high volumes of debt within four to five years. In fact, they can often help with 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.
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.
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.
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.
The risk of withdrawing retirement funds increases with age. So, if you’re still in your 20s and thinking about this option, it’s less bad than it is for someone in their 40s, but it’s still bad.
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.
Article last modified on May 8, 2019. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How to Pay Off Credit Card Debt - AMP.