Call Now

(844) 845-4219

How to Pay off Credit Card Debt?


Epic Loans Editorial Team

How to Pay off Credit Card Debt

Are your credit card debts getting out of control? If yes, you are not alone. According to a leading data analytics and consumer credit reporting company, 61% of American credit card holders have an average debt of $6,194. All the reward points on the card are not much use if you are carrying a large debt and paying a heavy interest rate.

Studies show that Americans do not use their credit cards as much on luxuries as necessities like food and gas. About 55% of Americans worry about their ability to pay off their credit card debt on time.

Limited and manageable debts help us buy homes and vehicles and send our children to college. However,  an unexpected obstacle like to loss of a job, injury, hospitalization, or the passing of a family member can overwhelm your finances and leave you unable of paying the debts. One of the effective ways to pay off is to secure a credit card debt consolidation loan at a lower interest rate.

This article explains the strategies to pay off your credit card debt conveniently and quickly.

Strategies for Paying Off Your Credit Card Debt

Paying off the credit card debt requires you to take a proactive approach. From negotiating better repayment terms from your creditors to taking a consolidation loan, you need to determine the strategy that works best for you –

Debt Consolidation Loan

If your debt is getting difficult to manage, but you have a good credit score, consider taking a consolidation loan. In simpler terms, a consolidation loan pays for your debt from all the sources and leaves you with just one loan for which you pay at a lower interest rate than a credit card. Other ways to consolidate the debt are –

1. Credit card balance transfer –

Find a credit card that allows you a 0% Interest rate on balance transfer for a certain promotion period, such as twelve or eighteen months. However, you pay a 3% to 5% balance transfer fee. You can transfer all the outstanding credit card debt to the new card and have an interest-free payment plan for the offer period.

We suggest that you review the terms of the new credit card carefully. Some promotional offers give a lower charge only the first time but put a higher interest rate over new transactions on the card. Others offer a 0% balance transfer and a lower interest rate for new transactions.

There is also no guarantee that you will get enough credit limit on the new card to transfer the existing balance. If your credit report shows a lower score and the existing debt is high, you may get a significantly lower limit on the new card.

If you miss a payment on the new credit card, your promotional offer may end, and the interest rates would suddenly jump to significantly higher levels.

2. Personal loan –

Credit card interest rates are usually much higher than a personal loan. Take a personal loan to consolidate and pay off the credit card debt while you only pay for one loan with a lower interest rate.

Debt consolidation is perhaps the simplest of all the methods as it lets you pay a single installment, bringing your focus to one payment and does not damage the credit score.

Read More: Personal Loan to Pay off Credit Card Debt

Snowball Method

Having debt from too many sources can overwhelm you, especially if you try to handle all of them simultaneously.

The snowball method of paying off the debt takes a psychological approach of smaller achievements until you clear the full debt. You list the debt sources in the increasing order of the amount you owe the creditor. You first focus on paying the smallest amount. Once that is done, you move to the next in the list until it takes a snowball effect, and you pay the largest debt at the end.

Avalanche Method

The debt avalanche is the opposite of the snowball method. You start by paying off the debt with the largest amount or interest rate. Once done, you move on to the next biggest debt and end with the smallest amount.

This approach is also very helpful because it can be faster and cheaper than the snowball method.

Debt Management Plan

If the snowball or avalanche methods are not feasible due to the sheer amount of debt, you can choose a debt management plan.

Debt counselors from a non-profit credit counseling agency negotiate better terms with your creditor, which helps consolidate the credit card debt.

This may close your credit accounts, and you may be unable to shop on credit for some time. You also pay the counseling agency a fixed rate each month for their service, which is overall lower than the credit card debt you were dealing with.

After a negotiation, paying off the debt may take three to five years, saving you from debt settlement or bankruptcy, which significantly damage your financial position.

Pay More than the Minimum Amount Each Month

Credit card companies give you three payment options. The first is to pay a minimum amount, the second to pay the full amount due that month, and the third to pay a custom amount of your choice.

The minimum amount is only about 2% of the monthly due, which may entice you to go for option 1. But that puts the rest of the monthly due at a compounding interest rate, which will snowball your dues in the long term.

It is best to pay the full amount due each month, and if you have surplus income, pay more than what is due using the custom payment option. You also improve your credit score by paying off the debt before time.

It is worth noting that with the increasing Federal Reserve rates, credit card repayments are becoming expensive. According to an estimate, an average household will pay an average of $1,380 in annual interest. This calls for choosing option 3 above and proactively paying off as much as possible.

Seek a Hardship Program

If you have a good history of debt repayments but are facing temporary hardship, reach out to your lender and explain the situation. These circumstances could include illness, loss of employment, or other events beyond your immediate control.

According to a survey, 45% of Americans say their wages have not increased enough to keep up with the rate of inflation. A hardship program could get you a lower interest rate or a fee waiver.

Most banks back the debt with loan protection insurance. While you pay for its premium, it covers contingencies if you cannot pay the loan in extreme cases such as death or loss of job due to permanent disability.

Tips for Paying Off Credit Card Debt

Tips for Paying Off Credit Card Debt

There are numerous proactive ways to pay off credit card debt without the need for damage control once the situation is already out of control. For better money management, you can follow these few tips:

Create a Budget

Create a monthly budget from your salary to pay off the credit card debt. Rather than working it out in your mind, write down your monthly income and expenses on paper. This will give you a clear understanding of where your money is going. It will also highlight the areas where you can cut back the expenses temporarily till you repay the debt.

However, this strategy will work only if you have an expense-tracking mechanism through an app or the good old pen and paper.

Lower Your Day-to-Day Expenses

Do you know exactly how much you spend each month on eating or drinking out, ordering food at home, going to the movies, or buying non-essential items from the supermarket? Do you have multiple online subscriptions draining cash or expensive car insurance?

Write everything down, and you will see opportunities to cut down the day-to-day expenses until you pay off the debt. 

For example, you may want to cut back on dining out or ordering in. If you want to go aggressive, you can also reduce travel or shopping for non-essential items for a while. This will easily save you hundreds of dollars each month, which you can use to pay off the credit card debt.

This is not a permanent change to your lifestyle. It is only temporary till the time you pay the debt off.

Make Extra Cash on the Side

After COVID-19, many people have realized the need for additional sources of income. This is not only helpful in emergencies but also in paying your debt off. You can leverage your skills to find part-time work from home. Other ways to add more income are –

  • Ask for a raise at work
  • Spend more hours at work for those incentives
  • Take a second job
  • Sell things that are taking up space at home but are no longer useful

Common freelance jobs people take through online platforms are content writing, graphic designing, foreign language classes, yoga classes, vlogging on YouTube, running their own podcasts, and tuition classes for children. It is all about recognizing your skills and leveraging them to solve a problem in the market.

The job for extra cash could only be temporary, but it will help you pay the credit card debt faster.

Read More: How to Pay off Credit Card Debt with No Money

Conclusion

Credit card debt does not have to be overwhelming if you plan it well. Without planning your income and expenses on paper, the debt may appear more intimidating than it really is. We urge you to be proactive and try paying the debt by temporarily cutting down on lifestyle expenses.

However, if the debt from multiple sources has already gone out of control, a debt consolidation loan could be the easiest way to manage everything in one place.

Frequently Asked Questions:

What is the best way to pay off credit card debt?

Some of the credible ways to pay off credit card debt are –
a. Consolidate the debt with a single loan.
b. Pay off in excess if you have surplus income.
c. Limit overspending on multiple credit cards.
d. Budget well and use the auto-payment facility.
e. Pay on time and pay the full amount rather than the minimum.
f. Convert the payment to EMIs, if necessary.

Is it possible to pay off credit card debt or leave a credit card balance?

Yes, with good planning, you can prepay the credit card balance. You can pay a surplus amount every month or at least pay the total due. Avoid paying the minimum due amount only, as that will snowball the balance payment with cumulative interest.

How to get a credit card paid off fast or quickly?

a. Manage your day-to-day expenses well.
b. Cut down on monthly leisure activities temporarily.
c. Use surplus income to prepay the bill.
d. Avoid using the credit card for new purchases temporarily.
e. Use a consolidation loan to bring every debt under one umbrella.