How The Payoff Loan Works
We get to know you
We take a look at your credit, income, and savings to determine your Payoff plan options. No consequences or commitments.
You choose your Payoff plan
Well show you multiple options including the lowest monthly payment, best rate, and quickest way to pay off.
Verify & Finalize
We finalize all the legal documents and verify your information before dropping the money into your account, or paying the credit card company directly.
See what goes into getting approved
Using A Credit Card For Everyday Items
Another trap people often fall into is using their credit cards for regular, everyday purchases. Unless you follow a monthly budget and can easily pay your credit card balance in full each month, charging non-discretionary expenses on a credit card can be dangerous. By keeping common purchases like groceries and utility bills off of your credit card balance, you’ll take a major step in getting spending under control.
Consider that a $3 gallon of milk bought with a credit card will eventually turn into a $30 gallon if you don’t pay off the balance at the end of each month. There’s no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.
Pay More Than The Minimum
Look at your credit card statement. If you pay the minimum balance on your credit card, it takes you much longer to pay off your bill. If you pay more than the minimum, youll pay less in interest overall. Your card company is required to chart this out on your statement, so you can see how it applies to your bill.
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Rule #: Always Pay Your Bill On Time
The most important principle for using credit cards is to always pay your bill on time and in full. Following this simple rule can help you avoid interest charges, late fees and poor credit scores. By paying your bill in full, you’ll avoid interest and build toward a high credit score.
The consequences of missing a payment
You’re usually given multiple options to pay your each month. While it may be tempting to pay just the minimum payment which could be as low as $25 you’ll start to accrue interest, leading to years of debt. The best practice is to pay off your credit card bill as soon as you make a purchase. This way, you can get into the habit of paying your bill long before its due date.
Each month, your issuer will provide your credit card statement with two dates: the closing date and payment date:
- The closing date is the last day you can make a charge for a monthly statement. After the closing date, any new transaction will go onto next month’s statement.
- The payment date tells you when the payment for a particular statement is due.
In the example above, this user has a closing date of Jan. 16 and a payment date of Feb. 13. This monthly statement ran from Dec. 17 to Jan. 16, with a payment due on Feb. 13. In this case, you have a 28-day grace period after your statement date before you’re required to make a payment. You won’t be charged any interest during this grace period as long as you pay in full by the due date.
Make A Debt Payoff Budget
Take a look at your spending habits and separate them into luxuries and necessities . Try to cut out as many luxuries as possible. The first objective is to bring your spending below your monthly income. The second goal is to free up some additional funds for higher debt payments. Once you know how much you can allocate to paying down your credit card debt each month, you can divvy it up among your balances, if you have more than one.
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Analyze Your Spending Habits To Maximize Your Rewards
Take a look at the past few months of your spending and categorize it as best you can. Ask yourself the following questions: Do you spend a lot on gas and groceries? How often do you travel? Can you put work-related purchases on a credit card and then get reimbursed by your company?
Once you figure out which categories you’re spending the most in, start researching different credit card options that fit your needs. After analyzing your spending, you may find that you want to use two credit cards to maximize rewards. However, while juggling cards can help you earn more rewards, don’t get so distracted you end up spending more than you usually would.
What Happens To Credit Card Debt When You Die
Credit card debt is paid off by your estate after your death. The debt is subtracted from anything you intend to pass onto any heirs. Your estate’s executor will use estate assets to pay down the debt. Your remaining assets will be passed onto your heirs after your debts are settled. The creditors have to write the debt off if your estate’s assets aren’t enough to cover the balances.
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Rule #: Monitor Your Monthly Statement
Monitoring your statement helps you check for fraud, stay on a budget and maintain a low balance. Even if you’ve set up an automatic payment, it’s still wise to log in and check your statement every month to ensure there are no suspicious transactions.
Thankfully, most issuers have sophisticated technology that checks for fraudulent charges, but they may not catch them all. At least once a month, you should check your statement and verify there aren’t any purchases you don’t recognize.
In addition to checking for fraudulent activity, monitoring your statement will help you stay on budget. There’s no way to know if you’re maintaining a low balance, keeping your spending in check, or blowing the budget unless you’re regularly checking in.
Pay Off Another Credit Card
On average, Americans have four active credit cards, with an estimated balance of $6,194. If you have multiple credit card balances, paying off one is only the first step of your journey toward financial freedom. Once youve eliminated the first credit card bill, you could keep applying your financial discipline toward the next one. Consolidating multiple credit card debts into a single, lower-interest account is always preferable to having several active balances with separate terms, billing cycles, and interest rates.
If you’re forced to maintain several debts at once, you’ll get to zero sooner by making a large lump-sum payment toward a single balance each month rather than spreading the amount between all your accounts. Just continue making minimum payments on your other accounts to avoid late fees and keep your account in good standing.
Debt snowball and debt avalanche are two effective strategies for paying off credit card debt. With a snowball, debts are paid starting with the lowest balance first, helping you knock out small debt quickly. With an avalanche, the debt with the highest interest rate is paid first, which saves you money in the long run.
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Work Out The Fastest Way To Pay Off Credit Card Debt
It’s all very well talking about the importance of paying down your debt fast. But how do you actually accomplish this? Two popular options are the debt avalanche and debt snowball strategies.
With the debt snowball method, you’ll tackle your smallest balance first. As you eliminate one source of debt, you’ll move your minimum payment plus any extra funds set aside for debt repayment across to tackle your next-smallest debt. Your snowball will keep growing as you tackle larger and larger debts until you’re finally debt-free.
The debt avalanche method is focused on the interest rates attached to your debt. In this debt payoff plan, you’ll start by paying off the loan or credit card debt with the highest rate, before moving on to the next highest interest rate. This has an avalanche effect on the remaining amount you owe.
Take a look at your individual debt pile, and work out whether the snowball or avalanche method will be the fastest way to pay off credit card debt in your situation.
The Debt Snowball Method
With the debt snowball method, youll focus on paying off your smallest credit card balance first, then youll work your way up to your larger balances.
Follow the steps:
Step 1: Continue to make the minimum payments on all your credit cards.
Step 2: Use your extra money towards the credit card with the smallest balance.
Step 3: When the credit card with the smallest debt is paid off, move on to the card with the next smallest debt.
Step 4: Continue this process until all your debts are paid off.
The snowball method can be a good option for those who have several small credit card debts to pay off. This method lets you see progress faster, but you may end up paying more overall since youre not considering your cards interest rates.
If you have money saved away for a rainy day, you may want to consider using some of your savings to help pay down your credit card debt. If your interest debt is higher than the amount of interest youre earning in savings, youre better off using some of your savings to lower your debt because carrying a high interest on a high balance will cost you more.
Carrying credit card debt can negatively impact your financial future. Paying it down means youll save on interest, improve your credit score and have more money available to put away for emergencies or an important savings goal.
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Best Ways To Pay Off Credit Card Debt
Paying off your credit card debt is no easy feat for most. Other than paying off your debts all at once with one large lump sum payment, there are generally three ways to tackle a big balance:
- Debt consolidation. This is where you take out a new loan or credit card, ideally at a lower rate of interest than what youre currently paying and transfer your other existing high-interest debts to the new loan. For some, paying just one bill a month is more appealing and helps keep them on track then multiple bills at different times.
- Debt snowball. This method has you paying off the card with the smallest balance first, then moving on to the next card with the smallest amount and so on. Some find this way gives them the psychological boost they need to stick to their debt repayment plan.
- Debt avalanche. With this approach, youll make the biggest payments to the card that has the highest interest rate. This method may take you longer, but youll get out of debt paying less interest than the debt snowball method.
Set Up Automatic Payments
Its generally good practice to set up autopay for your credit cards and any other monthly payments so that you reduce the chances of missing a payment particularly if you have multiple accounts and multiple due dates to keep track of.
Late payment fees for credit cards can exceed $30, and some will charge a penalty APR for late payments, so its well worth the setup to avoid these consequences.
But this doesnt mean you should ignore your bills. Make sure you review every bill that comes in to make sure there arent any fraudulent charges on your account and to ensure any refunds youre expecting come through.
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Chasing Credit Card Rewards
Credit card rewards are usually worth far less than the extra interest you’ll accrue if you can’t pay off the money you spend to earn those bonuses. You may, for example, receive one point for each dollar you spend, but you’ll probably need to redeem 5,000 points to get a $50 discount on a plane ticket. Since the interest charged on outstanding account balances often exceeds the typical 2% bonus, it may not be a worthwhile trade-off.
You should also avoid signing up for multiple credit cards, regardless of bonuses. If you already know you don’t manage credit cards well, don’t add temptation in the form of additional cards. It’s also easier to miss a payment deadline when you have more cards than you can manage. Remember, a few late fees or interest payments can quickly obliterate those sign-up gifts or rewards.
You can use your cards more frequently once you have your debt paid off and know how to avoid new debt. As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards instead of carrying cash, or in taking advantage of rewards like cash back or frequent flier miles. Just make sure those purchases fit within your monthly budget.
Use The Debt Avalanche Method
Consider this if you want to save the most money on interest.
Now that you have a plan, its time to get the ball rolling on paying off that debt. One option you can consider is using the debt avalanche method. With this strategy, youll find your debt with the highest interest rate that should be your priority.
The reasoning here is that, over the same period of time, a higher-interest debt will cost you the most , so you want to pay it down as soon as possible. Then, pay down the debt with the next highest interest rate, and so on.
If youll be most encouraged by saving the most money by prioritizing the highest-interest debt first, this can be the right choice for you.
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Other Strategies To Help You Build Your Credit Score
Payment history and credit utilization make up 65% of your score. Because these two factors alone comprise the majority of your score calculation, you should maintain a low balance and never miss a payment to beef up your score. If you’re already following these principles, here are four more strategies to help you build your credit score:
- Never cancel your first credit card. Unless it has an annual fee, you want to keep your oldest line of credit as long as possible, as this will help your average account age.
- Ask for a credit-limit increase, but don’t increase your spending. Call your credit card company for a credit-limit increase if you want to reduce your credit utilization ratio. This tactic will help your utilization score by decreasing your ratio.
- Open a new credit card and then set a recurring bill and automatic payment to that card. Setting up this small recurring payment will help both your overall utilization and your payment history.
- Pay off all your credit cards a few days before each statement closes if you’re applying for a loan soon. Paying off your cards early will decrease your overall utilization and boost your credit score for a few days.
She Transferred A Portion Of Her Balance
Lana was surprised to learn that she could only transfer a portion of her existing balance. She hadn’t anticipated this, even after researching how 0% APR credit cards work.
“Chase only allowed me to transfer over somewhere between $9,000 and $10,000,” Lana explains, even though her total credit limit was around $14,000.
Overall the transaction was simple, but the actual transfer took longer than Lana expected it would.
“It takes a little while for the balance transfer to go through,” she tells Select. “It was close to a month or a month and a half.”
Her advice for people using this debt payoff method is to plan on paying your old credit card bill for at least a month while the transfer is being processed and don’t assume your balance will disappear right away.
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Should I Use Credit Card For Medical Bills
It depends. If you know you can pay off your medical bills at the end of the month, a credit card is a fine option for payment. However, if you won’t be able to pay it back on time, the interest on a hefty medical bill can quickly overwhelm you. It’s a better idea to create a payment plan or other negotiation with the medical provider.
Find Help Through Debt Relief
Consider this if you have a large amount of debt that youre unable to pay off.
If you are really struggling to tackle your credit card debt and arent sure youll be able to pay off what you owe, then you might need to consider taking more serious action.
Here are some potential options to consider:
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I Highly Recommend The Credit Counselling Society
I was hesitant to make this call as I already felt ashamed about my financial situation. I was pleasantly surprised by how understanding and helpful both staff members were that I spoke with. The counselor, CCS gave me great advice and a personalized program to move forward. I highly recommend them!
Consequences Of Not Making Minimum Monthly Credit Card Payments
If you stop making the payments on a credit card, there will be consequences:
- You may lose entitlement to rewards under the credit cards rewards program
- Your creditor will attempt to collect money from you
- There will be a negative impact on your credit score and your credit report
- You may experience adverse consequences from the right of set-off
- A Licensed Insolvency Trustee can legally protect you from the consequences of unpaid credit card debt.
If you are worried about the consequences of unpaid credit card debt, your first step is to make a commitment to speak with a Licensed Insolvency Trustee to explore your debt relief options.
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