The average American has roughly $6,200 in credit card debt, and sometimes it can feel impossible to pay down that debt, especially if you already have a tight budget. Fortunately, there are various techniques that you can use to pay off credit card debt fast, such as paying more than the minimum or transferring balances. No matter which strategy suits you best, make sure to use our debt simulator [ew1] that enables you to identify the best ways to minimize interest expenses[ew2] . You can pay down debt quicker and even boost your credit score when you reduce interest costs.
Make Payments Over the Minimum
If your budget allows, you should always pay more than the minimum each month. The reasoning behind this is relatively straightforward – the less you pay towards your monthly balance, the more interest you pay. Not only that, but the minimum set by the credit card issuer is relatively low – typically the greater of 1% of the new balance or $35. Although making the minimum payment helps you avoid late fees, you’ll end up paying an excessive amount of interest (up to 36%). Since less of your payment goes toward the principal, it could take several years to pay down the outstanding balance.
Cut Your Expenses
An effective way to pay off credit card debt fast is to cut expenses to free up cash that you can allocate towards debt. You should pay close attention to variable costs – costs that change each month. These expenses include groceries, utilities, and entertainment. For example, ask yourself, “could I save money by shopping at a discount grocery store?” Another helpful technique is to differentiate your needs from your wants. Although you don’t have to cut out your wants completely, you should try to scale them back, so you can use the extra money to pay down your credit card debt.
Our software sends you critical insights about your spending, such as significant expenses and reoccurring subscriptions. You can also view clean visualizations of your spending, making it so much easier to identify what areas need improvement.
Do a Balance Transfer
Almost all major credit cards allow you to transfer a balance for a fee (typically 3% to 5% of the card’s balance). You can benefit from a balance transfer by transferring your outstanding credit card debt to a card that offers a 0% introductory APR. Moreover, a balance transfer makes it easier to stay on top of your credit card payments. Before transferring a balance, you want to ensure that the cost of the transfer won’t outweigh the amount you’ll save in interest.
Get a Credit Card Consolidation Loan
A credit card consolidation loan enables you to pay off all your outstanding credit card debt with a single line of credit. After you pay off the debt, you only have to make one monthly payment (the consolidation loan). Consolidation loans are a smart strategy because they typically have a lower interest rate than a credit card (6% to 36% depending on your credit score). Nonetheless, you still have to be mindful of loan applications and origination fees. If you have a track record of late payments and collection accounts, a consolidation loan might not provide as much benefit because you’ll receive a higher interest rate.
Use the Debt Avalanche Method
You should never aimlessly pay down credit card debt – always adapt a payment strategy to minimize interest expenses. A popular debt paydown technique is the debt avalanche method. Those who follow this method pay off debt with the highest interest rate first, regardless of the balance. Imagine that you have credit card A with an APR of 20% and a balance of $10,240. You also have credit card B with a balance of $500 and an APR of 24%. Using the debt avalanche method, you will pay credit card B first because it has the highest interest rate.
Set Up Automatic Payments
Setting up automatic payments to pay down credit card debt not only saves you time but helps you avoid late fees. Establishing automatic payments is a no-brainer, especially with multiple credit cards. Credit card companies let you choose if you want to pay the statement balance, the minimum amount, or a custom amount. Automatic payments won’t inherently enable you to pay off credit card debt faster, but you’ll never have to pay late fees that only set you back further.
Settle Your Debt
If you’re drowning in debt and don’t think you can pay it off, then debt settlement might be the best path for you. Simply put, debt settlement is when you only pay a percentage of the debt you owe (typically 10% to 50%). However, lenders must agree to the amount, and they are in no way obligated to do so. It’s essential to note that settled credit card debt will appear on your credit report and might be a red flag for future lenders.
Don’t Overuse Your Credit Card
Continuing to rack up a large credit card debt balance is counterintuitive to your goal. You don’t have to stop using credit cards altogether, especially since closing accounts can drop your credit score. However, you should only make a couple of small purchases each month to keep your credit cards active. Instead of using credit, stick to debit or cash. If you find that you don’t have enough cash to pay for your expenses, you’ll need to continue refining your budget and cutting spending.
Don’t let credit card debt prevent you from reaching your financial goals. Our platform features various tools, such as our debt simulator, that help you stay on top of your spending and minimize interest expenses. You can also use our credit utilization tracker to better gauge the total credit you have used compared to your total available credit. No matter where you are on your journey to financial freedom, we’re here to help you stay on track.