Key Takeaways
- If you still have good credit, a balance transfer card with a 0% introductory APR allows you to pay off debt without paying interest for a set period of time.
- A debt consolidation loan is a good option for those who don’t qualify for a balance transfer card.
- You can pay off debt on your own by using the debt avalanche, debt snowball or debt blizzard method.
- If you’re drowning in debt, you can reach out to your credit card issuer or consider credit counseling for guidance.
If you’re trying to figure out how to pay off credit card debt, you’re in the right place. I’m sure you already know it’s a daunting task to get rid of debt, but all you need for success is a plan, persistence and patience. I know that sounds like a lot of hard work, but you’ll get a rush of adrenaline that will help you stay motivated once you see your balances start to shrink. You’ll see!
How to Pay Off Credit Card Debt
Before you choose a strategy, you need to make a list of your credit cards, including the interest rates and current balances. Also, have a good idea of what your credit score is. Many of the major issuers offer a free credit score to their cardholders. There are even some, including American Express and Discover, that offer free scores to everyone, whether you’re a cardholder or not.
Depending on the specifics of your debt situation and credit score, one of the following five debt elimination strategies should work for you:
If you still have very good credit, you might qualify for a balance transfer card. These cards offer a 0% introductory annual percentage rate for a period of time, such as 12 to 21 months. This gives you a chance to pay off your debt while paying no interest.
- You could save a lot on interest when you use a 0% APR balance transfer card.
- You can consolidate debt on several cards if your credit limit is high enough.
- You need a pretty good credit score to qualify for the best balance transfer credit cards.
- A balance transfer card usually requires a transfer fee, which ranges from 3% to 5%.
If you don’t have a high enough FICO score (around 740) to qualify for a balance transfer card, there are other ways to get out of credit card debt, such as using a debt consolidation loan.
If you have multiple credit card balances or different types of debt, you can combine them into one installment loan. With a debt consolidation loan, you won’t get a 0% interest rate, unfortunately, but you’re likely to get a rate that’s lower than the APRs on your credit cards.
This is considered a personal loan, and if you have fairly good credit, you might get approved. Do shop around, though, and get the best rate you can qualify for.
- You only have to worry about one payment instead of making several monthly payments on credit cards and other loans.
- You get a fixed interest rate so you won’t end up paying more in interest due to economic conditions that can make interest rates go up.
- Some personal loans come with upfront costs, such as loan origination fees.
- If you transfer credit card balances to a debt consolidation loan and start using credit cards again, you can end up with new debt.
If you decide to tackle your debt on your own, one method is called the debt avalanche. With this strategy, you pay off your credit card balances from the highest APR to the lowest APR.
Pro: The best feature of this method is that you save the most money because you’re getting rid of high-APR debt first.
Con: If your balance on the highest APR credit card is large, it will take time to pay off your first credit card.
What if you need a quick psychological hit to stay motivated? Then try the debt snowball method. Here, you pay off your balances from the smallest debt to the largest debt.
Pro: You get a quick win because you’re starting with the smallest balance.
Con: You may pay more interest this way, so that’s a significant weakness in this approach.
The best choice for you is the approach that you will stick with. If the snowball method or the avalanche method works for you, then go for it! But what if you like a little bit of each strategy? It’s possible to combine the debt avalanche and the debt snowball methods and turn that into a debt blizzard.
If you want the best of both worlds, check out my own creation, the debt blizzard. Start out using the snowball method to get a quick adrenaline boost, then switch to the avalanche to save more money.
If you believe you can pay off the debt by using one of the options listed above, then choose your strategy and get going.
Pro: The debt blizzard combines the best parts of the snowball and avalanche methods – you pay off a credit card balance quickly and you get to pay less interest.
Con: After you pay off the first balance, you have to be patient to pay off the rest.
When to Ask for Help
If things are so bad that you’re not sure you can make the minimum payments, you don’t have to go through this crisis alone.
If a temporary solution might work for you, reach out to your credit card issuers and ask to speak with someone in the hardship department. You might get a lower APR or a smaller minimum payment for around 12 months. If you’re expecting your financial situation to turn around soon, this lifeline might be just what you need.
But what if your debt is insurmountable? If you feel like you’re drowning in debt, then consider speaking with a credit counselor to help you clarify what you need to do next.
Just in case you’re concerned that entering a one-year hardship program or getting credit counseling will lower your credit score, you can stop worrying. Simply asking for help will not impact your credit score. Now, if you eventually decide to go into a debt management plan or file for bankruptcy, your score will go down.
But the most important thing right now is to stop the madness. With time, you’ll get back on your feet and your credit score will recover.
