Wednesday, March 15, 2023

How I Paid Off My Credit Card Debt

Don't Miss

Pay More Than The Minimum Payments

I Just Paid Off My Credit Card Debt, Should I Keep Using It?

Remember the example we used earlier about how much youll pay in interest making only minimum payments on $5,000 in credit card debt? Lets say the interest rate stays the same, but you increase your monthly payment from $100 to $125.

Interest Charges


As you can see, just by adding $25 to your monthly payments, youll pay off your debt two and a half years earlier and save yourself $1,511.08 in interest charges. Even putting a little additional money toward your debt can make a big difference.

How Does Credit Card Debt Consolidation Work

If your credit score is in good shape, debt consolidation may be an excellent way to pay off your debt faster and save money along the way.

Consolidating credit card debt involves paying off your existing debt with a new credit card or personal loan, preferably with better terms. Heres a breakdown of how each debt consolidation option works:

  • Balance transfer credit cards: With a balance transfer credit card, you can transfer debt from one or more existing cards to a new one. Many balance transfer cards offer an introductory 0% APR promotion, which means you can pay off your debt interest-free during the promotional period. Some of these cards charge an upfront fee of up to 5% of the transfer amount, but that may be worth it for the interest savings.
  • Personal loans: You can use personal loans for just about anything, including debt consolidation. On average, personal loans charge lower interest rates than credit cards, and you may be able to get a rate in the single digits if your credit is excellent. Personal loans also offer the benefit of set repayment terms instead of just giving you a minimum payment.

Regardless of which option you choose, its important to avoid racking up balances on your paid-off credit cardsotherwise, you could end up in an even more difficult financial situation.

Stopped Using The Card

Tip number three is to stop using your credit card. For the first year of my debt repayment, I probably used my credit card about ten times. Last year, I only used it three. When I used it then, it was to pay for a hotel room. I immediately paid it off the next week. Of course, my debt started to go down when I stopped using the card. I know thats common sense, but there are a lot of people out there that are trying to pay off their credit card that are still using them

Don’t Miss: Does Walgreens Sell Prepaid Visa Cards

Consider The Snowball Method Of Paying Off Debt

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off. Understand the pros and cons of this debt pay down strategy by reviewing the Snowball versus Avalanche methods of paying down debt.

Decide On A Payment Plan

Avocado Toast Budget founder: How I paid off $20K in credit card debt

You’ve already decided on a payment amount, but your payment plan is a bit different. This is how you’ll distribute that monthly payment among your .

Now, if you opened a balance transfer card or a debt consolidation loan, this is easy. Since you only have one account to pay, you can just put your entire monthly payment on that account. But if you didn’t and you have multiple credit cards, then a payment plan is needed.

There are two common payment methods, known as the debt snowball and debt avalanche, that you could use:

  • Debt snowball: Make minimum payments on all your credit cards, and put all your extra money on the credit card with the smallest balance. Once you’ve paid off that credit card, repeat the process for the credit card with the next smallest balance.
  • Debt avalanche: Make minimum payments on all your credit cards, and put all your extra money on the credit card with the highest APR. Once you’ve paid off that credit card, repeat the process for the credit card with the next highest APR.

The debt snowball is great for staying motivated, because it cuts down your number of debts most quickly. The debt avalanche saves you the most money in , since you target debts with the highest APR first.

Also Check: How To Scan Visa Gift Card

Look At The Big Picture

In order to know where youre going, you have to see where you stand. Write down all of your current credit card information. The name of the card, the limit, the current balance, minimum payment amount, and interest rate.

Once youve got everything together, you can see how much credit card debt you actually have. Its important to face this information because its easy to dig our heads in the sand. Its easy to pretend that it doesnt really exist or that its not as bad as it is. It may not be as bad as you think it is.

It is also helpful to look at your credit score to see how it is being affected by your debt. Try out or as free options.

When Should I Seek Debt Relief

If youre feeling overwhelmed by your debt or you simply cant find a way to make any progress on a repayment plan it might be time to consider a debt relief program. This may involve speaking to a non-profit debt management company and having them help you create a plan thats right for your particular circumstances.

Recommended Reading: Will Opening Another Credit Card Hurt My Credit Score

Use Credit Cards As A Tool Not A Crutch

Paying off debt is one thing, but staying debt-free can be just as challenging. Credit cards can be a powerful tool or a crushing financial burden on your shoulders it ultimately depends on how you use them.

Nelson used credit cards as a crutch for a long time. Now that shes free of credit card debt, she no longer relies on credit to cover essential bills, and instead uses her credit cards as a financial tool to build credit and earn rewards.

Im still using my credit cards I just make sure Im paying my balance in full every month and show a zero balance, she says.

Nelson was able to figure out a plan that worked for her, and in seven months, paid off a credit card balance that she had been carrying for almost a decade. If youre trying to pay down credit card debt, the best thing you can do is make a plan and get started.

It was a huge sacrifice, but it was worth it. I would do it again, says Nelson. Im now using the $1,000 I was putting toward extra credit card payments to build wealth and invest. The whole experience just helped me out so much.

*All information about the BankAmericard Cash credit card and U.S. Bank Visa® Platinum Card has been collected independently by NextAdvisor and has not been reviewed by the issuer.

Choose A Debt Repayment Strategy

Dip Into My 401(k) to Pay Off My $25,000 Credit Card Debt?

Once Nelson developed her spending plan, she needed to figure out the best way to use the additional payments.

I used the avalanche method, she says. I decided to pay off the credit card with the highest interest rate, which happened to be the credit card with the lowest balance.

The avalanche method is a common debt payoff strategy because it helps you save money by eliminating higher-interest debt first. You put all your extra payments toward the account with the highest APR, or interest rate, while making minimum payments on all the others. Once the card with the highest APR is paid off, you move onto the following highest-interest account. The cycle continues until youre debt free.

A common alternative is the snowball method, in which you instead make higher payments on the account with the lowest balance while paying the minimum on your other accounts. Then, youd roll those payments over toward the next lowest balance, and so on. You may end up paying a bit more in interest over time, but this strategy has the psychological benefit of eliminating certain balances more quickly.

Although Nelson didnt use a balance transfer credit card to pay down her debt, it can be another useful tool for paying down high interest debt. A balance transfer card lets you move your debt from one card to another, and pay down your principal balance without accruing interest over an introductory 0% APR period.

Also Check: How To Buy Prepaid Visa Online

What Are Tricks To Paying Off Credit Cards

Tricks to paying off credit cards include increasing your income with a side-hustle or part-time job, using one of the above debt management strategies, lowering your monthly spending, and switching to only using cash in order to better manage your finances.

The information related to AAdvantage® Aviator® Red World Elite Mastercard® has been independently collected by ValuePenguin and has not been reviewed or provided by the issuer of this card prior to publication.

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

Advertiser Disclosure: The products that appear on this site may be from companies from which ValuePenguin receives compensation. This compensation may impact how and where products appear on this site . ValuePenguin does not include all financial institutions or all products offered available in the marketplace.

How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin’s alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

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

Read Also: What Credit Card Has The Best Rewards Program

Why Is Paying Off Credit Card Debt Important

The balance you carry from month to month on your credit card can have a major impact on your credit score. In fact, your , which is how much you currently owe compared to your total credit limit, accounts for about a third of your score. Experts suggest that you should generally try to keep your credit utilization ratio below 30%. This means that if your card’s line of credit is $5,000, you don’t want to owe more than $1,500 at any given time.

A higher credit utilization ratio will damage your credit score and make it difficult or impossible to obtain loans or other credit, especially when combined with a rocky payment history. A poor credit score can also mean higher insurance rates and even impair your ability to rent an apartment or get a new job. Thats why its important to pay your credit card bill on time and try to pay down any big balances as quickly as possible.

Your credit score isn’t the only reason to maintain a low balance on your credit card, of course. The more debt you carry, the more you’ll also pay in interest chargesand credit cards charge some of the highest interest rates around, often well over 15%, sometimes more than 20%. Carrying a lot of debt means paying a hefty price for that borrowed money. What’s more, credit card interest, unlike the interest on a home mortgage, for example, isn’t tax-deductible. So you’ll also lose out at tax time.

Simple Ways To Manage Your Credit Card Debt

Should I Use a Personal Loan to Pay Off My Credit Card Debt?

If youre having trouble managing your credit card debt, here are some things you can do to get back on track.

  • Pay down credit cards in interest rate order: If you have balances on more than one credit card, pay at least the minimum due on each of them andthenapply any additional money you can scrape up tothe card with the highest interest rate. When that one’s paid off, move on to the second most expensive card, and so on.
  • Avoid new debt: While youre working to pay off your outstanding credit card debt, its smart not to take on any new debt and dig yourself into a deeper hole. Some bills may be unavoidable, but this would be a good time to put major purchases that you’d ordinarily pay for with a credit card on hold.
  • Use cash: Studies show that consumers spend less money when they use cash instead of credit cards. One MIT study, for example, found that students using credit cards to buy sporting event tickets were likely to spend up to 64% more than if they used cash. So if you want to work on paying down your credit card balances, put your cards away and, wherever possible, use cash instead. Paying with cash can also be a good reality check. Though credit cards encourage a buy-now-worry-later approach, when youve used up the cash in your wallet, its gone.

Don’t Miss: How To Increase Apple Credit Card Limit

What Do I Need To Know If Im Thinking About Consolidating My Credit Card Debt

When you consolidate your credit card debt, you aretaking out a new loan. You have to repaythe new loan just like any other loan. If you get a consolidation loan and keep making more purchases withcredit, you probably wont succeed in paying down your debt. If youre havingtrouble with credit, consider contacting a credit counselor first.

Consolidation means that your various debts, whether they arecredit card bills or loan payments, are rolled into one monthly payment. If youhave multiple credit card accounts or loans, consolidation may be a way tosimplify or lower payments. But, a debtconsolidation loan does not erase your debt. You might also end up paying moreby consolidating debt into another type of loan.

Before you use a consolidation loan:

  • Take a look at your spending. Its important to understandwhy you are in debt. If you have accrued a lot of debt because you are spendingmore than you are earning, a debt consolidation loan probably wont help you getout of debt unless you reduce your spending or increase your income.
  • Make a budget. Figure out if you can payoff your existing debt by adjusting the way you spend for a period of time.
  • Try reaching out to your individualcreditors to see if they will agree to lower your payments. Some creditors might be willing to accept lower minimum monthlypayments, waive certain fees ,reduce your interest rate, or change your monthlydue date to match up better to when you get paid, to help you pay back yourdebt.

Home equity loan

How Long Does It Take For My Credit Score To Reflect A Paid

Your credit score updates whenever the credit agency receives new information. Therefore, the time it takes to reflect a paid-off credit card depends on how often your reports your credit information. In general, you can expect companies to report your information at least once per month, but they may do it more frequently than that.

Don’t Miss: Can You Get Cash Back From Prepaid Visa

What Happens When You Pay Off A Credit Card Balance

Theres no downside to paying off your credit card debt. But how much of an effect it will have on your financial life will depend on a few factors like how much debt you have and how much of your total available credit that debt is taking up . If you have a $10,000 total credit limit and you pay off a debt of $8,000, that will have a greater impact on your score than if you have a $10,000 limit and pay off $100 in debt.

There Isnt One Right Way To Pay Off Credit Card Debt But There Are Some Tried

I Thought I Could Pay Off My Credit Card, Now I’m $30,000 In Debt!

Those methods fall into two broad categories either pay off each debt individually or consolidate all of your debts into a single monthly payment.

Lets take a look at four popular strategies for paying down credit card debt, along with the pros and cons of each, to help you decide which option is best for you.

  • Balance transfer credit card
  • You May Like: Can Someone Use My Credit Card With Just The Number

    Best For Those Who Dont Qualify For Other Debt Payoff Options

    If you cant make any of the other debt payoff options work, you may want to consider borrowing money from family and friends. If you choose this option, its a good idea to carefully evaluate who youll ask to lend you funds, to draw up a repayment agreement, and to prioritize making any necessary payments.

    What Is Credit Card Debt Consolidation

    Credit card debt consolidation is where you combine all of your credit card loans into one balance. This can make it easier to track since there is just one monthly payment and if the new balance is at a lower interest rate, it can help you pay off your debt faster too. Common debt consolidation loans include shifting your balance to a new card with a 0% APR offer or taking out a personal loan to pay off the credit card balances.

    Read Also: How To Update Expired Credit Card On Apple Pay

    More articles

    Popular Articles