The 6 Fastest Ways to Pay Off Credit Card Debt
Credit card debt can be hard to manage. It can be expensive as high interest can cause your balance to quickly balloon, and variable interest rates can make it hard to determine precisely when you can expect to be debt-free.
If you have outstanding balances, you may be looking for the fastest way to pay off credit card debt. The good news is paying off credit card debt is possible; all you need is a realistic plan with a debt-free date and actionable steps to help you get there.
How to pay off credit card debt fast
1. Focus extra payments on your highest APR credit card
A common way to tackle your credit card debt is to use the debt avalanche method to help save money on interest charges. In a debt avalanche, you’ll list each of your debts from highest APR to the lowest. Each month, you’ll make the minimum payment on each of your credit cards except the one with the highest APR. For that card, you’ll make extra payments on it. Once that card is paid off, you’ll move on to the card with the next-highest APR.
Focusing extra payments on one card at a time can be better than splitting the payments between multiple cards because it pays off your most expensive debt first. Over time, you’ll save more money on interest charges.
2. Make extra payments on your card with the lowest balance
The debt snowball method is another common way to pay off credit card debt. It works similar to a debt avalanche, except you focus extra payments on your card with the smallest balance. Once your card with the lowest balance is paid off in full, you’ll focus payments on the next-smallest balance.
Compared to a debt avalanche, a debt snowball won’t save you as much money on interest charges. Instead, the purpose of the strategy is to keep you motivated by giving you small wins. As you pay off credit cards, you’ll also reduce the number of bills you’re juggling each month.
3. Transfer your balance to a credit card with a lower APR
A balance transfer allows you to consolidate outstanding balances onto one credit card with a lower APR. The key benefit of a balance transfer is that you can pay off credit card debt faster, since more of your monthly payments will go toward the principal balance. Having just one card to pay off can make managing your budget easier, too.
Many balance transfer credit cards offer new customers an introductory 0% APR for around one to two years. Before opening a new card, however, read the fine print. Find out what the APR will be after the introductory period and whether you’d be charged deferred interest from the purchase date if you fail to pay off the card’s balance before then. Balance transfer cards also commonly come with a balance transfer fee equal to 0% to 5% of the transferred amount. Take this fee into account when determining whether a balance transfer would be worthwhile.
If you pursue a balance transfer, be mindful not to charge up your paid-off cards. Doing so would be counterproductive when you’re trying to escape credit card debt. With your new card, make all your payments on time; if you’re late the introductory APR offer could end. You should also aim to pay off all the debt on your new card during the introductory APR to avoid interest charges.
4. Combine multiple balances with a debt consolidation loan
A debt consolidation loan is a good option for paying off credit card debt because, similar to a balance transfer, it combines all your outstanding credit card debt into one loan. Debt consolidation loans also have a fixed term (usually between 12 to 60 months or longer) and a fixed interest rate that can be lower than credit card interest rates.
A debt consolidation loan is a personal loan, so you don’t need collateral to qualify. Instead, lenders will heavily rely on your credit and financial health to determine eligibility and the terms they offer. The average best offered APRs by credit band range from around 12% to 25%, as of May 2020.
Consolidating debt with a loan buys you more time to pay off your debt compared to a balance transfer card, and having a set repayment timeline means you’ll know precisely when your debt will be paid off. However, the interest charges can be much higher compared with a balance transfer card.
If you don’t qualify for a debt consolidation loan, don’t worry, there are other ways to consolidate.
5. Borrow from a friend or family member
If you have a lower credit score, are not approved for financing or prefer not to deal with lenders, borrowing money from family or friends may be the fastest way to tackle credit card debt. Doing so could get you a low- or no-interest loan you can use to pay down balances.
When pursuing this strategy, it’s a good idea to get the terms of the loan in writing. This way all parties know what they’re getting into and what the commitments are. Making late payments to family and friends can’t hurt your credit score, but it could strain your relationship. That’s why it’s best to put the terms and conditions in writing.
6. Enroll in a debt management plan
High credit card debt can be hard to manage and sometimes even the minimum monthly payments are unaffordable. If you’ve tried paying off credit card debt on your own and none of the above debt repayment strategies are feasible, you may want to consider a debt management plan or debt settlement.
A debt management plan is offered by a nonprofit credit counselling organization such as the National Foundation for Credit Counseling (NFCC). These plans offer a no- or low- setup cost and an affordable monthly fee (if any). With this type of plan, you’ll make one monthly payment to a credit counselor. They will make payments on your behalf, as well as negotiate with creditors to potentially have fees waived and interest rates and monthly payments reduced. Your typical debt management plan can last between three to five years and, as part of the plan, you may be asked to close credit card accounts.
Should you keep paid-off credit card accounts open?
Credit card debt can be a source of financial stress. If spending is a temptation, it may be a good idea to close your accounts once you’re done paying off credit card debt. Before you do, ask yourself if it’s best for your financial situation. For example, you may keep one account open in case of an emergency. Charging purchases and immediately paying off the card’s balance could also help you build or maintain your credit, on top of potentially earning rewards.
A high credit score can help you access more competitive loan terms like lower interest rates and increase your chances of approval.