Instead of paying high interest to credit card companies, it's time to whittle down your balances and use the money to build wealth for yourself.

15 minute read

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Hello, friends, and welcome back to the money girl podcast. If you are a new listener, I am thrilled to have you here. I’m Laura Adams, a personal finance author spokesperson.

Consumer advocate. Who’s been writing and hosting this show since 2008. Be sure to subscribe. So you never miss a weekly episode. And if you’re a longtime listener, it’s great to have you here. I appreciate you downloading each episode. And you know, I cover a wide range of personal and small business financial topics, including building credit, dealing with debt, investing for retirement, buying and selling real estate, paying taxes, having the right insurance money management strategies, and a whole lot more. If you’re ready for more knowledge, resources, and motivation to manage your money the best way possible and create a richer life you are in the right place.

My friends, I’ve recently received several questions about paying off credit card debt. So that’s what today’s show is about. Paying down or completely eliminating credit cards. Debt is a fundamental goal for your financial health because carrying a balance from month to month comes with high interest, which is a waste of your financial resources instead of paying money to credit card companies.

It’s time to use that money to build wealth for yourself. So I’ll answer your questions and review seven tips to pay off your credit card debt. As always you’ll find the notes for this and every show with any resources that I mentioned, links all of that good stuff. And of course, the full archive of podcasts, all of that is in the money girl [email protected] Just look for episode 659, which is called how to pay off credit card debt faster. All right, let’s get into it. The first way to pay off credit card debt faster is a pretty obvious one. Number one is to stop making new card charges. And while that may seem obvious, I think for a lot of people making card charges becomes habitual. It’s very routine. And if you are carrying card balances from month to month, you got to realize what it’s costing you as interest accrues, it can double or even triple the original cost of a charged item, depending on how long it takes you to pay it off.

So the first step of improving any area of your life is to acknowledge what you’re doing wrong. It’s to acknowledge your mistakes and financing a lifestyle that you can’t afford using a credit card is a big mistake. So stop making new charges until you take control of your cards. And you get to a point where you can use them responsibly by paying them off in full every month. Yes, reigning in your credit card spending will probably require sacrifices. So maybe you’ll consider ways to earn extra income, such as starting a side gig, finding a better paying job, or maybe selling your unused stuff and you using that money to pay off your debt. Also look for ways to cut costs by downsizing your home, maybe downsizing your vehicle or going from multiple vehicles to one vehicle, downsizing your memberships or eliminating them, or just cutting any unnecessary expenses.

The second tip for getting out of credit card debt faster is to consider the big financial picture. Before you decide to pay off your credit card debt aggressively, I would encourage you to look at the big picture of your financial life, consider any other debts or obligations that maybe should be prioritized such as tax delinquency, illegal judgment, unpaid child support. And these are all very serious delinquencies that should take priority over credit card debt. Now, if you don’t have any of those sorts of serious things hanging over you, the next debts to pay off are those that are already in default, or maybe have been turned over to a collection agency already. You want to tackle those before the credit card debt. So assuming that you don’t have any serious debts or any debts in default, then you want to focus your attention on your emergency fund, or maybe your lack of an emergency fund.

I recommend maintaining a minimum of six months worth of your living expenses on hand. And in many cases not having a cash reserve is the reason why people get into credit card debt in the first place. Now you may think that saving six months of emergency money is too much. Well start with one month, just start small, start with a couple of hundred dollars, start with 500, build it up to a thousand, get in the habit of building that emergency fund.

Otherwise, it’s likely that you will continue getting into credit card debt in the future. The next step is to make more than the minimum payment. Many people who can pay more than their monthly minimum card payment, don’t do it. The problem is that the minimums go mostly toward interest and they don’t reduce your balance significantly. Let me give you an example. Let’s assume your card charges 15% APR, and you’ve got a $5,000 ballots, and let’s say you never make another purchase on the card. If your minimum payment is 4% of your card balance, it would take you 10 and a half years to pay it off. And here’s the worst part. You would have paid almost $2,400 in interest.

So, always pay more than the minimum payment. Even if you can only pay just, you know, five or $10 more, it’s gonna pay off. Tip number four, target date:

That’s with the highest interest rates first. So I would encourage you right now, or maybe right after you listened to this show, make a list of all your debts, including credit cards, lines of credit, any loans that you’ve got, personal loans, student loans, get it all down, include the balances that you owe and the interest rates charged. Then I want you to rank your liabilities in order of highest to the lowest interest rate. Remember that the higher a debt interest rate, the more it costs you in interest per dollar of debt. So getting rid of the highest interest debts first saves you the most.

Then you can use the savings to pay more on your next highest interest debt and so on. If you’ve got several credit cards, evaluate them the same way, just tackle them in order of highest to the lowest interest rate. And that’s going to give you the most bang for your buck. And if a credit card is not the most expensive debt you have, you want to make it a lower priority.

In general, debts that come with a tax deduction, such as mortgages, home equity lines of credit, and student loans should always be paid off last. Not only do those types of debts have relatively low-interest rates, but when some or all of the interest is tax-deductible, they cost you even less on an after-tax basis. So never put a mortgage or a student loan, you know, ahead of a credit card debt always get that credit card debt paid off first. I’m assuming it’s going to be higher than these other types of debt. So again, evaluate your debts in order of highest to lowest interest rate and tackle the highest interest rate debts first.

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Come now tip No. 5, use your assets to pay off cards. If you have assets such as savings in the bank and nonretirement investments that you could use to pay down high-interest credit cards, it may make sense. Just remember that you still need a healthy cash reserve. As I mentioned, such as six months worth of living expenses or some amount of living expenses on hand working up to that six months.

If you don’t have any, or you don’t have enough emergency money saved, do not dip into your savings to pay off credit card debt also consider what you could sell. As I mentioned, any unused sporting goods, jewelry, or a vehicle that could help you raise cash to increase your financial cushion,.

Tip No. 6: Consider using a balance transfer credit card. If you can’t pay off credit card debt using existing assets, consider optimizing it. This is a strategy where you move down from higher to lower interest options. Now, this doesn’t make your debt disappear, but it does reduce the amount of interest you have to pay. Using a balance transfer credit card is a common way to optimize debt temporarily. You receive a promotional offer during a set period if you move debt to the account. So by transferring higher interest debt to let’s say a low-interest promotional card, a zero interest transfer card, you save money, and then you can use that savings to pay down. Well, it’s faster.

And our final tip, No. 7:

Can consolidate your high rate balances. And this is where we’re going to cover a couple of questions. I received a question from Sarah F who says, I love your podcast and turn to it for a lot of my financial questions. I have credit card debt. And I’m wondering if it’s a good idea to get a personal loan to pay it down, or is that a scam? And Rachel Kay says, I love listening to your podcasts and I’m focused on becoming more financially fit this year. I have a couple of credit cards with high-interest rates. Would it be wise for me to consolidate them to a lower interest rate?

If so, will it affect my credit, thank you, Sarah and Rachel, for your questions. So consolidating credit card debt using a personal loan is not a scam. It is definitely a legitimate way to shift your debt from a higher rate account to a lower interest rate account and having an additional loan added to your credit history actually helps you build credit. If you make the payments on time, it also works in your favor by reducing your credit utilization ratio when you reduce your overall credit card debt. So if you qualify for a low rate, personal loan, here are some benefits that you get from doing debt consolidation.

You cut your interest expense, which is the whole reason for doing it and you get a fixed rate and term. So it might be 6% APR for 60 months with payments of $600 a month. For instance. So getting that fixed rate in term will help you sort of see the light at the end of the tunnel and have a very structured way to pay off that debt. And it consolidates everything into one account. So you just have one monthly debt payment. And as I mentioned, it can also help you build credit. When you have an additional credit account in your credit history. Now, a couple of downsides of using a personal loan to consolidate debt include being tempted to continue making credit card charges. So you’ve got to make a real commitment to getting rid of that debt once. And for all. And another downside is potentially higher monthly loan payments compared to the minimum credit card payments that you were used to seeing

While it may seem counterintuitive to use new debt, to get out of old debt. It all comes down to the interest rate that you’re charged, depending on the terms that you’re offered. Using a personal loan can be an excellent way to reduce interest and get out of it.

Debt faster. Now, one thing: can I make clear is that credit cards are terrific. I have many credit cards. I use them daily and they come with loads of benefits like purchase protection, convenience, and rewards. They’re also very powerful tools for building credit. When you use responsibly, the trick is that you’ve got to use them in a way that you can pay them off every month. You can only charge amounts that you know, you can afford to pay off. So if using credit cards and maintaining good credit is one of your goals. I recommend that you keep a paid-off credit card open instead of canceling it to maintain or improve your credit. You’ve got to have credit open in your name and then use those accounts regularly, making small purchases on a card from time to time that you pay off in full and on time is enough to add positive information to your credit reports and boost your scores.

You don’t need to carry a balance from month to month or pay any interest on a credit card to build excellent credit. So again, let me review the seven ways to pay off credit card debt.

No.1: stop making new car charges. No.2, consider your big financial picture. No.3, make more than the minimum card payment. No.4, target debts with the highest interest rates. First number five, use your assets to pay off cards. Number six, consider using a balance transfer card, and number seven, consolidate your high rate balances. If you’ve been thinking a lot about your credit card debt, and you’re just really ready to take control of it. I want to let you know that my best-selling and super affordable online class, which is called get out of debt fast is a proven plan to stay. Debt-free forever is deeply discounted. Right now it’s $12 and 99 cents for a limited time.

And I don’t want you to miss this savings opportunity to learn more. Simply send me a text message. Text the phrase debt course, D E B T C O U R S E to the number three three four four four. And I’ll send you an email with a link to the sign-up page where you can get this really super affordable price. You’ll come away with a clear debt reduction plan to eliminate credit cards, student loans, medical bills, mortgages, or any debt that you owe. Even if you don’t have extra money to pay them off faster, you simply will not get different results with your money. If you don’t take different actions. So I hope you’ll check it out and I hope to see you in class. That’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is produced by the audio wizard, Steve Ricky Berg with editorial support from Karen Hertzberg.

If you’ve been enjoying the podcast, take a moment to rate and review it on Apple Podcasts. You might also like the backlist episodes and show notes that are always [email protected]

I’ve received several questions from Money Girl podcast listeners about paying off credit card debt. It’s a fundamental goal because carrying card balances come with high interest, a waste of your financial resources. Instead of paying money to card companies, it’s time to use it to build wealth for yourself.

7 Strategies to pay off credit card debt faster

1. Stop making new card charges

If you’re carrying card balances from month-to-month, it’s essential to understand what it costs you. As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

The first step to improving any area of your life is to acknowledge your mistakes, and financing a lifestyle you can’t afford using a credit card is a biggie. So, stop making new charges until you take control of your cards and can pay them off in full each month.

As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

Yes, reining in your card spending will probably require sacrifices. Consider ways to earn extra income, such as starting a side gig, finding a better-paying job, or selling your unused stuff. Also, look for ways to cut costs by downsizing your home, vehicle, memberships, or unnecessary expenses.

2. Consider your big financial picture

Before you decide to pay off credit card debt aggressively, look at the “big picture” of your financial life. Consider any other debts or obligations you should prioritize, such as tax delinquency, legal judgment, or unpaid child support. The next debts to pay off are those already in default or turned over to a collection agency.

In many cases, not having a cash reserve is why people get into credit card debt in the first place.

Assuming you don’t have any debts in default, focus your attention on your emergency fund … or lack of one! I recommend maintaining a minimum of six months’ worth of your living expenses on hand. In many cases, not having a cash reserve is why people get into credit card debt in the first place.

3. Make more than the minimum payment

Many people who can pay more than their monthly minimum card payment don’t do it. The problem is that minimums go mostly toward interest and don’t reduce your balance significantly.

For example, let’s assume your card charges 15% APR, you have a $5,000 balance, and you never make another purchase on the card. If your minimum payment is 4% of your card balance, it will take you 10½ years to pay off. And here’s the worst part – you’d have paid almost $2,400 in interest!

4. Target debts with the highest interest rates first

Make a list of all your debts, including credit cards, lines of credit, and loans. Include your balances owed and interest rates charged. Then rank your liabilities in order of highest to lowest interest rate.

Getting rid of the highest interest debts first saves you the most.

Remember that the higher a debt’s interest rate, the more it costs you in interest per dollar of debt. So, getting rid of the highest interest debts first saves you the most. Then you can use the savings to pay more on your next highest interest debt and so on.

If you have several credit cards, evaluate them the same way—tackle them in order of highest to lowest interest rate to get the most bang for your buck. And if a credit card isn’t the most expensive debt you have, make it a lower priority.

In general, debts that come with a tax deduction such as mortgages, home equity lines of credit, and student loans, should be paid off last. Not only do those types of debt have relatively low-interest rates, but when some or all of the interest is tax-deductible, they cost you even less on an after-tax basis.

5. Use your assets to pay off cards

If you have assets such as savings and non-retirement investments that you could use to pay down high-interest credit cards, it may make sense. Just remember that you still need a healthy cash reserve, such as six months’ worth of living expenses.

If you don’t have any or enough emergency money saved, don’t dip into your savings to pay off credit card debt. Also, consider what you could sell – such as unused sporting goods, jewelry, or a vehicle – to raise cash and increase your financial cushion.

6. Consider using a balance transfer card

If you can’t pay off credit card debt using existing assets, consider optimizing it by moving it from higher- to lower-interest options. That won’t make your debt disappear, but it will reduce the amount of interest you pay.

Balance transfers won’t make your debt disappear, but they will reduce the amount of interest you pay.

Using a balance transfer credit card is a common way to optimize debt temporarily. You receive a promotional offer during a set period if you move debt to the account. By transferring higher-interest debt to a lower- or zero-interest card, you save money and use it to pay down the balance faster.

7. Consolidate your high-rate balances

I received a question from Sarah F., who says, “I love your podcast and turn to it for a lot of my financial questions. I have credit card debt and am wondering if it’s a good idea to get a personal loan to pay it down, or is that a scam?”

And Rachel K. says, “I love listening to your podcasts and am focused on becoming more financially fit this year. I have a couple of credit cards with high-interest rates. Would it be wise for me to consolidate them to a lower interest rate? If so, will it hurt my credit?”

Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

Thanks to Sarah and Rachel for your questions. Consolidating credit card debt using a personal loan is not a scam but a legitimate way to shift debt to a lower interest rate.

Having an additional loan added to your credit history helps you build credit if you make payments on time. It also works in your favor by reducing your credit utilization ratio when you reduce your credit card debt.

If you qualify for a low-rate personal loan, here are some benefits you get from debt consolidation:

  • Cutting your interest expense
  • Getting a fixed rate and term (such as 6% APR for 60 months with monthly payments of $600)
  • Having one monthly debt payment
  • Building credit

A couple of downsides of using a personal loan to consolidate debt include:

  • Being tempted to continue making credit card charges
  • Having potentially higher monthly loan payments (compared to minimum credit card payments)

While it may seem counterintuitive to use new debt to get out of old debt, it all comes down to the interest rate. Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

What should you do after paying off a credit card?

Credit cards come with many benefits, such as purchase protection, convenience, and rewards. Don’t forget that they’re also powerful tools for building credit when used responsibly. If maintaining good credit is one of your goals, I recommend that you keep a paid-off card open instead of canceling it.

You don’t need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To maintain or improve your credit, you must have credit accounts open in your name, and you must use them regularly. Making small purchases charges from time to time that you pay off in full and on time is enough to add positive data to your credit reports. You don’t need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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