How To Pay Off Credit Card Debt: The Best Way & Tips
The best way to pay off credit card debt is as soon as possible. And you can save both time and money by using a credit card payoff calculator as well as a 0% balance transfer credit card, if you have good or excellent credit. You can check your latest credit score for free on WalletHub to find out.
Credit card debt is extremely expensive, after all. And we owe an awful lot of it: nearly $1 trillion in total and $8,600 per household, as of the fourth quarter of 2017.
The more credit card debt you owe and the more balances you have, the more complicated things can get. That’s why you need a plan. Below, we’ll explain the best ways to pay off credit card debt as quickly and inexpensively as possible, starting with WalletHub’s preferred method.
The Best Way to Pay Off Credit Card Debt
- Get Caught Up – Simply having credit card debt doesn’t hurt your credit score. Missing monthly minimum payments does, however. And the further behind you get, the worse the damage becomes. So ask your card’s issuer how much you need to pay to bring your payment status from “delinquent” to “current” / “on time”. Furthermore, whenever you pay your credit card bill, make sure you pay at least the minimum amount required at the time. Lesser amounts won’t prevent delinquency from worsening.
- Build an Emergency Fund – Building a financial safety net is an important early step because it will save you from wasting a lot of time and effort should you encounter a major unexpected expense or income disruption in the near future. For example, it would be pretty disheartening to get out of debt and then wind up right back where you started due to some unforeseen event. Setting aside a bit of each paycheck for this purpose will help you avoid missed payments in such a situation.
- Make a Debt Payoff Budget – Take a look at your spending habits and separate them into luxuries (e.g., premium cable or unlimited cell phone data) and necessities (e.g., food, housing, health insurance, minimum credit card payments and emergency fund contributions). Try to cut out as many luxuries as possible. The first objective is to bring your spending below your monthly income. The second goal is to free up some additional funds for higher debt payments. Once you know how much you can allocate to paying down your credit card debt each month, you can divvy it up among your balances, if you have more than one.
- Start with the Highest Interest Rate – If you have more than one credit card balance, the one with the higher interest rate will cost you the most money in the long run. So devote the majority of your debt budget to that balance in order to eliminate it first.
- Pay the Minimum on Other Balances – Just because you’re focusing on one debt doesn’t mean you can ignore others. You need to pay at least the minimum amount required for each of your credit card accounts every month. If you don’t, your credit score will suffer. And that will limit your ability to save with a 0% balance transfer credit card, for example.
- Repeat Until Debt Free – Once you have dealt with your most expensive debt, allocate the lion’s share of your repayment budget to the balance with the next-highest interest rate. And then repeat this process until you reach the finish line.
Following these steps will eventually become habitual. And good habits lead to better financial outcomes.
Below, you can learn about some tools and strategies that you can use to supplement WalletHub’s recommended debt repayment plan. Hopefully, they’ll help you save both time and money on the road to debt freedom.
Tools to Help You Pay Off Credit Card Debt Faster
0% Balance Transfer Credit Cards. A balance transfer credit card gives you a multi-month break from interest charges, allowing you to save money and pay down your principal balance faster. But you need to pay off most, if not all, of your transferred balance during the 0% intro term. Balance transfer credit cards tend to have high regular APRs. A balance transfer calculator can help with that.
If you’re interested, the best balance transfer cards offer 0% intro APRs for 15 to 24 months, sometimes without even charging a balance transfer fee.
- Debt Settlement. If you can afford to repay a large portion of your debt in one lump sum, you can try to negotiate a debt settlement agreement. This entails paying most of what you owe in one fell swoop in return for your creditor forgiving the rest.
- Debt Management. Creditors like communication. And they like knowing when they’re going to get their money. So if you’re having trouble keeping up with your payments, contact your credit card company and try to work out a new payment plan.
- The Island Approach. If you’re carrying a credit card balance from month to month, you shouldn’t use the same credit card for everyday purchases. If you do, those purchases will start accruing interest right away. But if you have a separate card for everyday spending, you should be able to pay the bill in full every month. So no interest. And if you don’t, you’ll know you’re overspending. This is one example of the Island Approach to credit card use.
- Autopay. To make sure you pay at least the minimum every month, you can opt to have the credit card company automatically deduct that payment from your bank account. This way, you can never be late unless your account doesn’t have enough money.
Other Ways to Pay Off Credit Card Debt
The WalletHub method for getting out of credit card debt isn’t the only option available to you. It’s just the best way to go about it, in our opinion. With that being said, here are a few other items in your debt-repayment toolbox.
|Method||What It Does|
|Debt Consolidation Loan||Combines multiple debts into one loan with a single monthly payment.
But it can be hard to get approved for a big enough loan amount.
|Crowdfunding||Allows you to borrow from individuals, rather than banks and credit unions.
The terms may or may not be competitive.
|Bankruptcy||Declares you cannot pay your debts and provides legal protections.
This should be a last resort, as it can ruin your credit.
Whether or not any of these individual options is a good idea depends on their interest rates, fees and other terms. In other words, you need to crunch the numbers and figure out which route will save you the most money.
However you decide to proceed, you’ll need to address the elephant in the room: what caused you to get into debt in the first place. For most people, that means reevaluating spending habits to cut back on unnecessary expenses. We also recommend checking out your free personalized credit analysis. Improving your credit score could help you get out of debt faster, if you can qualify for a 0% balance transfer credit card. And a higher credit score will help you stay out of debt by reducing your overall financial burden.
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