Create a Customized Plan to Get Rid of Credit Card Debt Fast
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Thankfully, credit card debt is a real pushover once you understand strategies for obliterating it quickly.
We’re going to ask some questions to get you thinking about your financial situation, and then we’ll talk about some strategies for getting out of credit card debt quickly.
Customized plan to get rid of credit card debt fast
Creating a customized plan for reducing credit card debt requires an analysis of your individual situation. Answer the questions below and review some of the unique strategies you can employ, based on your financial circumstances.
Are you a homeowner?
If you own a home, you may have something called equity, which is the difference between the amount you owe on the home and the amount it’s worth.
This matters when it comes to high-interest credit card debt because with home equity, you could get a home equity loan or home equity line of credit with a much lower interest rate. You could then pay off the credit card debt with those funds and simplify your financial life by consolidating to a single payment rather than enduring multiple credit card payments.
- Lower interest rates: Home equity loans and HELOCs generally have lower interest rates than credit cards. The better your credit, the lower your rate may be.
- Streamline finances: With all your credit card debt rolled into one loan or line of credit, you not only have a single monthly payment to manage but a single due date and interest rate.
- Help negotiate lower payoffs: Having the cash on hand to pay off your credit card debt can give you some leverage with lenders. It may encourage them to reduce your balance due or remove recent late payment charges.
- Home at risk: Because your home secures the loan, you run the risk of foreclosure if you can’t make your payments.
- Debt won’t be dischargeable without a payment plan: In a Chapter 7 bankruptcy, credit card debts may be dischargeable without a payment plan, but that’s not the case with mortgage debt.
- Closing costs: While the interest rate on a home equity loan or HELOC might be lower than your credit cards, remember that there will likely be a closing fee.
Putting your home on the line to pay off credit card debt is a big risk. But if you’re careful about the amount you borrow and the terms, you can save a lot of money while avoiding bankruptcy.
Do you have more than $5,000 in credit card debt but you aren’t a homeowner?
When you have a substantial amount of credit card debt — about $5,000 or more — and you don’t own a home, don’t have enough equity or you aren’t comfortable risking your home to pay off credit card debt, a personal loan could be a better option.
Personal loans are generally unsecured and may have lower interest rates than credit cards. They also have flexible terms that can stretch out the loan’s duration to make monthly payments lower.
- Might reduce your interest rate: With good credit and the right lender, you can find personal loans with much lower interest rates than credit cards.
- May give you bargaining power: When you get the funds from the personal loan, you could try to negotiate with credit card issuers to reduce your balance before you pay it in full.
- Not secured by any property: Unlike home equity loans, unsecured personal loans are not backed by any collateral.
- May have fees: Personal loans sometimes have origination fees that can increase the overall cost of the loan.
- Could be difficult to get a low interest rate: If you have a low credit score, personal loan rates might exceed those of your credit cards.
Shopping around for the right low-rate, low-fee personal loan can offer you tremendous financial freedom, provided you have the credit to secure it.
Do you have $3,000-$5,000 in credit card debt?
When you have a smaller amount of credit card debt, say between $3,000 and $5,000, it could be worth transferring the balances to a card with a 0% interest introductory rate. Because of the fees associated with balance transfers, however, you might not want to transfer a balance of less than $3,000. Getting six months to a year of 0% interest can give you a head start on smashing your debt. In some cases, if you can afford to be aggressive with payments, it may even give you enough time to pay off the debt completely.
- Introductory rate: Gives you at least six months — and up to 21 months — to pay without interest.
- Help with debt: Money saved in interest can be used to pay down the debt aggressively.
- May charge balance transfer fees: Fees for transferring a balance can range between 3% and 5% of the amount being transferred.
- Must be paid off on time to avoid interest: If you don’t pay off the transferred balance by the end of the promotion period, you will once again be paying interest.
- Limited amount of time to make the transfer: You may need to transfer your balances within 90 days of opening the account to get the introductory rate.
With a carefully considered payment plan that allows for payoff by the time the introductory period ends, balance transfers can be a powerful ally in quick credit card debt payment.
How to stay out of credit card debt
Executing a plan to pay off your credit card debt is powerful, freeing and money-saving. But if you end up back in credit card debt shortly after, it’s hardly worth the trouble. That’s why part of your strategy for getting rid of credit card debt needs to include a plan for staying out of debt. To do so, try these methods:
- Study your finances: When you look at your finances — your debts, bill obligations, spending, savings and goals — you can get a better sense of the reason you sometimes make the decision to use credit cards and help avoid making that decision in the future.
- Create a budget: Credit cards are often used to bridge the gap between what you can afford and what you want. When you put yourself on a budget, you better ensure that you have the available funds to afford those things that are important to you so you rely less on credit cards to get them.
- Limit debt: When you overextend your noncredit card debt, it can very quickly increase your debt-to-income ratio, thus increasing your interest rates and expenses. So while focusing on paying off your credit card debt, make sure you also work to reduce or at least limit your noncredit card debt, too.
- Better your habits: When you get into the habit of paying off your credit card balances in full each month, it can impact your spending decisions since you no longer view credit cards as a tool for long-term debts.
- Leave the credit cards at home: One quick way to reduce the likelihood of future credit card debt is to leave the cards at home when you go out. You can’t use them if you don’t have them.
- Evaluate credit card purchases based on total cost: When you decide to use a credit card for a purchase, you agree to the possibility of a surcharge on the purchase in the form of interest. When you reevaluate purchases by considering this potential added cost as a 20% fee on top of the item’s price, it can help you reconsider whether it’s worth paying for with credit.
- Pay off charges during their interest-free periods: Many credit cards offer interest-free or interest-deferred periods for certain purchases and amounts. These are great to take advantage of as long as you pay off the purchase before the promotional period ends. When you’re making payments, take the item’s total, divide it by the number of months it will be interest-free or deferred and make this payment each month.
The bottom line
Like other financial tools, credit cards can serve an important purpose in your life. But when you carry balances from month to month, you increase overall expenses. And as your balances add up and accrue interest, you can quickly see your debt become overwhelming.
Paying off your cards and keeping them paid off gives you much more financial freedom and increases the power of your spending.