Consider Professional Debt Relief Help
Its easy to feel overwhelmed if you need to pay down $15,000 in credit card debt that never seems to decrease. If you feel that way, it may be time to consider professional help to manage your credit card debt.
You can find nonprofit creditcounseling agencies at the National Foundation for Credit Counseling. Agencies listed there, like InCharge Debt Solutions, are there to support your effort to get out of debt.
Besides helping you create a budget and discuss how to make good financial decisions when tackling debt, a professional debt counselor can help you manage and pay off you credit card debt faster.
Agencies have agreements with major card companies to reduce rates for those enrolled in their program. The counselor will offer you the lower rate, and you can decide if it works for you. You would make one monthly payment to the professional counseling agency, and the agency disburses the money to each credit card company in agreed upon amounts.
Nonprofit debt management helps you set affordable monthly debt payment goals based on your current income and expenses. Counselors will work with you to create a monthly budget that includes the debt management payment.
Dealing with an affordable once-a-month payment will have a positive long-term effect on your credit score, because your payments will be on time and your debt will be paid down.
Stop Using Your Credit Card
It may seem obvious, but still, it can be very hard. Not only is it a tough habit to break, but if youre putting money toward paying it down, you may not have money to do some of the things you used to do when you were piling up $15,000 in credit card debt.
Cut the card up, give it to someone who will hold it for you or try a time-honored method put it in a large container of water and freeze it. If youre tempted to thaw it out, spend that time as the ice melts thinking about the $15,000 in credit card debt you owe and how desperately you want to get rid of it.
This is where your budget and expense-cutting become your biggest tools. If youve done it right, youll still be able to eat, put gas in your car and even maybe treat yourself to a coffee, all without using credit.
Does Keeping A Balance Help Your Credit Score
Carrying a balance does affect your credit score. The size of that impact depends on how large of a balance youre carrying compared to your credit limit. , or the amount of available credit you have used, is an important factor in your credit score. Second only to payment history, it counts for about 30 percent of your total FICO score. VantageScore uses a weighted scale and calls this part extremely influential.
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How To Pay Off Credit Card Debt Early
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Did you know that credit card debt can be harmful to your health? While its difficult to imagine anyone creating harm for themselves when using their credit cards, this should give you pause if that next purchase adds to a seriously overweight credit card balance. In that respect, knowing how to pay off credit card debt is no different than going on a life extending diet.
Today, the growth in debt is linked to the growing gap between the increase in the cost-of-living and income growth. In 2016, the growth in medical and housing costs far outpaces income growth, making it difficult for many families to keep up without relying on credit cards. With that being said, accumulating debt opens the discussion of paying down that debt.
% Balance Transfer Credit Card
It might seem counterintuitive to apply for a credit card when your main goal is to get out of credit card debt, but 0% balance transfer cards can help save you money in the long run. Find a card that offers a long 0% introductory period preferably 15 to 18 months and transfer all of your outstanding credit card debt to that one account. You’ll have one simple payment each month, and you wont pay interest.
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Simple Ways To Manage Your 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.
Look Into A Debt Consolidation Loan
With a debt consolidation loan, you can bundle multiple lines of credit into one manageable payment, to one lender. First and foremost this can make managing your debt much easier but on top of that, if your debt consolidation deal offers better rates than your credit card, it could even be cheaper, too.
As with our previous point, before diving into this option just remember to sit down and carefully run through the calculations to make sure it makes financial sense – after all, theres no point switching from one type of debt to another if there are no actual benefits involved. Its also worth considering that while the payment might be more manageable month-to-month, you could end up paying more overall, over a longer period of time.
Another thing to consider is your affordability both now and in the future. With a loan, youre locked into set monthly instalments over a set term and if you slip off the schedule, you could find yourself in hot water.
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How To Calculate Credit Card Costs
Use the credit card interest calculator above to help work out the costs of owning a credit card and how much interest you will pay.
Our credit card interest calculator will show you how long it will take you to pay off your balance based on what you repay each month, and how much it will cost you overall including the interest payable.
Just enter your current balance, APR and monthly repayments. You can then adjust your monthly repayments to see how paying more or less each month will change your debt.
Is It Better To Pay In Full Or Carry A Small Balance
Paying your balances in full every month demonstrates that you are living fully within your means. In other words, you are not using to extend your income, but as a way to spend the income you already have. This is the best sign of overall financial health.
Some high credit score achievers may carry a small balance in order to demonstrate that they are using the credit they have been given. There is a school of thought that says this is necessary to show they use their credit in a responsible way.
The key here is to know when your credit card issuer reports your account information to the credit bureaus. In many cases, that will be at the end of your billing cycle. Your balance on that day will be whats reported to the bureaus, and it will be factored into your credit utilization. So, in theory, you could keep a small balance on that date and then pay it off the next day to show some account activity and avoid interest charges.
Hitting 1 percent seems to be the holy grail here. However, I am not a fan of chasing the perfect score, and trying to get to 1 percent may be a lot more trouble than it will ultimately be worth.
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Transfer Your Balance To A 0% Credit Card
If you have good credit generally a credit score of 690 or higher you may be able to transfer your balance to a credit card with a 0% introductory rate that lasts 12 to 18 months. With no interest to worry about, you can focus on whittling down the core debt as fast as possible.
In general, you cant transfer debt among cards from the same issuer for example, you cant transfer a Chase balance to another Chase card. Most cards charge a fee of 3% to 5% of the amount transferred, although a few cards don’t charge a fee for balances moved within a certain time frame.
If you choose this route, make a plan to pay off your full balance before the introductory period ends to avoid accruing interest charges.
About the author:Erin is a credit cards expert and studies writer at NerdWallet. Her work has been featured by USA Today, U.S. News and MarketWatch.Read more
The Disadvantage Of This Method
While the debt snowball method is good for people who like to see progress quickly as they pay off smaller debts, it may not always be the most cost-efficient strategy in the long run.
The debt snowball method focuses on the smallest debt first, regardless of the total amount owed or what interest rate youâre paying. The higher the interest rate, the more youâll pay over the life of the loan. If you have a lot of outstanding credit card debt or large amounts of debt, this might not be the right plan for you.
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Put Your Credit Cards On Ice
Somebody somewhere came up with the idea of putting your credit cards in a baggy of water and placing it in the back of the freezer. The concept being that if the temptation ever arose to use them, by the time they thawed, the urge would pass. At the very least, you need to distance yourself from your cards. It is not recommended that you cancel any credit accounts, except perhaps your retail accounts. If you feel you have the discipline, you can carry one around for emergencies.
Work Out What You Owe
First things first, you need to know how much you collectively owe so if youve got more than one credit card, do the maths and add up the outstanding total on each.
While youre splitting your debt by account, work out which is the most expensive and then tackle that one first. Then, once youve cleared that line of credit any spare pennies can be used to put towards the less pricey ones.
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Apply Any Extra Money In Your Budget To Your Payment
Say you owe $5,000 on a credit card with an 18% APR and a minimum payment of $100. It would cost you $4,311 in interest if you just paid the minimum. But what if you cut your monthly expenses by $25 and made a $125 payment each month instead? You would save $1,618 in interest charges and almost three years of payments. If you could find an extra $50 in your monthly budget, you would save $2,328 in interest and pay your debt off four years faster.
How To Pay Off Credit Card Debt Fast
Make a plan, consider a consolidation loan, and cut out any non-essentials if you want to get out of credit card debt.
Edited byAshley HarrisonUpdated October 13, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Although credit card debt can be quite easy to get into, the high interest rates can make it hard to get out of. Luckily, there are many resources that can help you learn how to pay off credit card debt as fast as possible, so you can save money.
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Spend Excess Funds Wisely
If you have extra money a certain month, like a tax refund or a bonus from work at the end of the year, you should use those funds strategically.
Think of it this way: Using your tax refund to pay off credit card debt or a loan, for example, will leave you with more money in the long run because youll save on interest by paying the debt off sooner.
While its hard not to use the extra cash to treat yourself, think of it as a long-term investment, and promise yourself a reward down the road.
When A Personal Loan Is A Bad Idea
You Still Cant Control Your Spending
Replacing one debt with another is not a good idea if you still havent addressed the underlying behavior which got you into the problem. At best it would be kicking the can down the road a bit. At worst, it can balloon into a bigger problem. Your debt is only a symptom of a larger problem which is uncontrolled spending or trying to live beyond your means.
You Dont Have the Discipline to Stick to a Plan
Replacing your credit card debt with a personal loan could lower your monthly payments, but if you dont have the discipline or fortitude to stick to a plan, it could be for naught. If you were able to lower your monthly credit card debt payment from $600 to $450, the question becomes, what will you do with the extra $150? If you have the discipline to apply it to your loan to pay off your debt even faster, then it makes sense. If not, then you really havent improved your situation.
Your Debt is Out of Control
If your credit cards are maxed-out, you could have trouble qualifying for a personal loan with a reasonable interest rate. You may be better off seeking debt counseling which can also offer the opportunity to consolidate your credit card debt payment under better credit terms.
Should You or Shouldnt You?
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Pay Your Debts When You Get Paid
Pay your bills, especially the credit cards, on payday, leaving enough money in your bank account for your living needs until the next payday. That way, the bills are paid and you dont have the opportunity to spend the money on something else.
Automatic withdrawals help tremendously with this. Set up automatic withdrawals for as many of your bills as you can, but particularly for the credit card bills, and make sure youre making the paymentt for enough that youre paying extra, not the minimum.
How Long Until Your Balance Is Paid Off
This credit card payoff calculator figures how long to get out of debt and how …show more instructions
When you find the plan that is right for you make sure to use the printable amortization schedule so that you have a permanent record to keep.
And if you’re ready to take the next step beyond just paying off credit card debt so you can start building wealth then check out this financial freedom course here.
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Best Credit Cards For Carrying A Balance
If you need to carry a balance, be sure to use a . Currently, the average credit card interest rate is just over 16 percent, so anything lower than that is considered a low interest rate. Even better, choose one with a 0 percent intro APR offer as well. Here are a few of our top picks:
- Best for: Flat-rate cash back
- Intro APR: 0 percent for 18 months on balance transfers
- Regular APR: 13.99 percent to 23.99 percent variable
- Annual fee: $0
- Rewards: 1 percent cash back as you buy, plus another 1 percent when you pay for your purchases
- Best for: Rotating cash back categories
- Intro APR: 0 percent for 14 months on purchases and balance transfers
- Regular APR: 11.99 percent to 22.99 percent variable
- Annual fee: $0
- Rewards: 5 percent cash back on up to $1,500 in purchases each quarter on rotating categories after you activate, then 1 percent
- Best for: Students, those with little credit history
- Intro APR: N/A
- Regular APR: 12.99 percent to 26.99 percent variable
- Annual fee: $0
- Rewards: Earn 1 percent on eligible purchases or up to 1.5 percent cash back on eligible purchases when you make 12 on-time payments, plus 2 percent to 10 percent cash back at select merchants.
Here Is What You Need To Know About Variable Interest Rates On Credit Cards:
What they are: Variable interest rates are interest rates based on the banking system’s fluctuating rate, usually in accordance with the Prime Rate.
How they fluctuate: Variable interest rates change as often as the Federal Funds Rate changes. In a growing and healthy economic climate, the Federal Reserve will usually raise rates. In an economic downturn, they’ll lower rates. In normal economic periods, changes to the Federal Funds Rate happen in small increments – half a percent here and there – over a span of years.
When the economy is in trouble, however – such as during the 2008 financial crisis or the COVID-19 pandemic – the rate may be changed quickly and significantly. The Prime Rate will change according to the Federal Funds Rate, and that change will eventually reflect on any variable interest rate credit cards. Credit card companies have been known to raise the margin they add to the Prime Rate in order to keep rates high for new offers, however.
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