What’s the best way to eliminate credit card debt? You might say “just pay if off,” but there’s much more you could be doing to get rid of those balances quickly. Here are nine different ways to take care of credit card debt that go beyond just mailing in a check.
1. Stop spending on credit
Continuing to charge purchases on your credit card while you’re trying to pay off debt is like trying to bail out a sinking boat with a teaspoon. Put down the credit cards until you get the debt under control since there’s no good reason to keep spending with them. If you hate carrying cash, grab a debit card, which you can’t rack up debt on, instead.
2. Transfer balances to avoid interest
Just as the name sounds, a balance transfer itself won’t eliminate credit card debt. But lowering your credit card bills means taking any advantage you can get. One of the strongest forces working against you is exorbitant credit card interest rates. Lowering your interest rate any way you can means transferring your credit card balance to another card might be the best way to do so. If you’re eligible for a credit card that will charge low or no interest for an introductory period, save money on the interest and put the extra funds towards debt.
3. Pay more than the minimum
Paying the minimum of your credit card is the slowest and least efficient way to pay down your debt. You’ll pay the most interest, which will extend the term of your debt even longer. Even small yet extra payments made on your credit card can have surprising impacts, reducing the amount of time you’ll need to repay your debt. How much of a difference does it make? According to the Federal Reserve credit card calculator, if you pay the minimum on a $5,000 credit card balance that charges 15% interest, it’ll take about 24 years to completely pay it off, with $7,200 in interest paid over that period. Compare that to paying $200 a month on this balance, which will only take three years to pay off with total interest adding up to about $1,000. That’s a savings of 21 years of payments and $6,200!
4. Devote more income
When it comes to paying down your debt, don’t limit yourself to just the income you have currently to attack any credit card balances. Paying down debt requires getting crazy about how you can pay down your loans. Come up with a ways to earn more and pay off debt any way you can above the minimum payment amount.
5. Pay bills first
You’re only required to make a credit card payment once a month, but that doesn’t mean you can’t pay more frequently. A better way to make sure you’re putting your paychecks directly towards your debt is to make payments with every paycheck. This helps ensure you pay down bills before you spend on other things. If you don’t want to make a payment with every paycheck, make sure to cover your bills before you go spending money elsewhere.
6. Debt snowball
Strategizing with how you pay down your debt will help you lower your bills. One of the most effective, proven ways of doing that is with the debt snowball method. The method is simple: pay all you can to the account with the smallest debt balance while making the minimum payment on all other debts. Once that’s paid off, move to the next lowest balance and so forth. The downside is that you won’t save the most in interest using this method, but the idea is that paying off more accounts faster provides the motivation you need to keep going, and research has even proven this to be the case.
7. Look to savings accounts
Deciding to pay down debt with savings is a complicated decision. Generally, credit card debt will cost a higher interest rate than any savings account will generate in interest. Because of this, paying off debt with savings may save you more money. But before you commit to this, you need to consider other questions, like: how much do you need to save for emergencies? Are you saving this cash for something else? There’s no one answer for these questions, so it comes down to your comfort level and what you believe is best.
8. Get on a debt management plan
Sometimes you can’t tackle credit card debt on your own. One source of help is a debt management plan, which may help you work your way out of credit card debt more quickly and easily. These plans are typically set up with help from a credit counselor and when your creditors are willing to accept your repayment plan. On the plan, you’ll make one payment each month, and that payment is distributed to all your creditors according to the agreement. In return, you don’t have to deal with multiple bills and you can potentially reduce interest and eliminate some fees. Consider this if you’re deeper in debt and at the point where the above options might not solve the problem.
9. Negotiate debt settlement
If you’re not eligible for debt management, you can still settle your debts without going into bankruptcy. Debt settlement means you’ll negotiate your debt with creditors to pay only a portion of what you actually owe. Your credit score will likely suffer, but that may be a necessary sacrifice to eliminate your credit card debt by paying off what you can actually afford.