Do you have credit card debt that you want to pay off quickly? Well, you’re not alone. In fact, more than 45% of Americans currently have a credit card balance, and according to Ben Woolsey, director of marketing and consumer research for CreditCards.com, the average amount of debt per household is $15,956.
Millions of Americans in their late 20s and early 30s will be outlived by their credit card debt, so it’s time to take charge now. If you have credit card debt, then there are several simple steps you can take to eliminate it in less time.
1. Pay Off the Highest Interest Rate Card First
Invest any extra cash you have every month into paying off your highest interest rate card, while still paying the minimums on your others. Once you’ve paid off your highest interest rate card, begin applying all your extra cash to the card with the next highest rate, and continue paying the minimums on the remaining cards. Each time you pay off a card, you will be left with a little more extra cash every month, which you can invest into the next card you’re paying off, creating a positive payment snowball effect.
Paying off the highest interest card first is the fastest way to eliminate your credit card debt and reduce your monthly interest fees. But if your goal is to pay off a single credit card as quickly as possible, then you’ll want to attack the card with the lowest balance first. This can also leave you with a huge feeling of accomplishment knowing that you’ve paid off one of your credit cards in full. On the other hand, if you’re trying to boost your credit score, then you’ll want to pay off the card with the highest utilization rate first. The utilization rate is simply your overall card balances divided by their credit limits. The lower your utilization rate is, the better your credit score is.
2. Don’t Use Your Cards
The easiest and fastest way to eliminate credit card debt is to stop using your credit cards. Plan to pay in cash and you will automatically spend less. In fact, research has shown that consumers are willing to pay twice as much for an item when they are paying with a credit card as opposed to cash. If you are still using your credit cards as you are trying to pay off your debt, you will only sabotage your own efforts.
3. Get Organized
Make a spreadsheet detailing which cards you have, how much debt you have on each, and their interest rates. You’ll also want to know what your total amount of debt is, and make a game plan on how you’ll begin paying it off. You won’t be able to tackle a problem if you don’t know what you’re dealing with.
4. Set a Budget
Make a budget detailing what you spend. Are there areas where you can save money? This extra money can be used to pay down your credit cards even faster. Whether you are dining out less, downgrading your cable service, going easy on the A/C, or cutting unnecessary luxury expenses, do what you need to do to reduce your spending.
5. Request a Lower Interest Rate
Call each credit card company and request a lower interest rate. Lower rates can mean lower monthly payments and fees, so every payment will pay off more of the principal. If you have good credit or you’ve been offered a lower rate by a competing credit card, make sure to mention that to the customer service rep.
6. Make Two Minimum Payments Per Month
Making two minimum payments every month can be your key to living debt-free in no time. Each time you make a payment, your average daily balance is reduced, which results in lower interest charges. This will result in paying off debt at a much faster speed and can also help boost your credit score.
7. Transfer a Balance
If you have a credit card with a high interest rate, you may want to consider a balance transfer. You may be eligible for a 0% promo rate, which will provide you with more time to pay off the balance and allow you to focus on other high interest rate cards. It’ll also mean that you’re spending less in interest fees, so more money will be going towards the principal owed. However, you want to be careful with balance transfers because there is usually a fee incurred of about 3% of the total amount transferred. (See also: Best Cards with 0% Balance Transfer APR)
8. Consolidate Your Debt
It may be in your best interest to consolidate your debt. This can usually be done by borrowing money from a bank, private lender, or a peer-to-peer lender, such as Lending Club, Prosper & SoFi. You can use the loan to pay off all of your credit cards at once and then focus on paying one larger loan payment per month.
9. Continue Paying Your Cards Off
Once you’ve paid one credit card off, it may be tempting to pocket what you would normally spend on that bill every month. However, the last thing you should do right now is pay less on your credit cards; the goal is to increase your payments every month. Instead, taking the money you would usually spend on that credit card and putting it towards another one will result in a faster pay-off.
10. Don’t Close the Card
While it may seem like a good idea to close your card after you’ve paid it off, this is actually not the best route. Your credit score is based partly on your credit utilization ratio, which is calculated based on the amount of credit you are using versus the total amount of credit in your name. Once you close the card, there is less credit in your name. This will cause your debt utilization ratio to increase, which will hurt you in the end. It’s also important to maintain a long length of credit history, so keeping your card open will improve your score, too.
Do you have any other tips on how to eliminate credit card debt quickly? Please share your thoughts in the comments!