How To Pay Off Debt: 6 Strategies That Work
Debt can feel overwhelming, especially when you have debt on multiple credit cards. With these strategies you can take control, to know youre making progress in paying off your debt and save money on interest.
In more ways than one, debt can be a four-letter word.
When it gets out of control whether from medical bills, shopping sprees, or unexpected emergencies it becomes an albatross that affects your emotional and physical health.
Although it might feel overwhelming, you can tackle any debt the same way: one step at a time. Heres a guide on how to pay off debt and how to pay off credit card debt, in particular even when it seems impossible.
Start by learning what debt can do to your credit rating, and why credit card debt can be particularly damaging. Or jump to our favorite debt payoff method, the debt avalanche.
When Is The Second Method Used
The method Chase goes with is always the one that results in the higher minimum. So if the second method of calculation results in a number higher than $35 , you’ll pay according to that method. Because the typical late fee for Chase cards is $39, a late fee will usually mean you have to pay using the calculation rather than the set amount.
This means if you’ve been used to paying the set amount every month, your next month’s bill after a late payment may come as a bit of a shock. It’ll be not only your new late fee but also your interest charges and percentage of your latest balance that you’ll need to pay off.
How Can I Pay Off A Credit Card With High Interest Rate
Paying off more than the minimum payment will obviously shorten the time to pay it off in full, as well as lessen the amount of interest you pay. But often it can take a substantial increase in a consistent monthly payment to get to a zero balance on a high interest rate card.
For instance, if you were to increase your payments to a fixed $100 per month on that card with the 21% APR and a $2,000 balance, you’ll still pay about $486 in interest charges but it’ll take only about two years to get the balance down to zero.
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Fees And Interest Charges
These 2 sections might show up separately but will show the total fees and interest paid year-to-date. If you pay off your cards balance each month, you wont be accumulating interest. If you have a card with an annual fee, you should expect to see this listed here.
An interest charge calculation for this billing period will also be included. This will be broken down by each balance type along with the annual percentage rates for each.
Bottom Line: Check this area to make sure youre not accumulating late payment or other unnecessary fees or being charged for any interest or fees in error.
How To Do A Balance Transfer With Chase
Whether you opt to make your balance transfer online or over the phone, transferring balances from one Chase card to another isnt as complicated as it might seem.
If youre planning to apply for a new balance transfer credit card so you can consolidate debt, you can enter the balance transfer details online during the application process. Once you apply for a balance transfer card and youre approved, youll need to provide additional information, such as the account number of the old card you want to transfer balances from, the card issuer name and the amount you want to transfer.
If you already have a Chase credit card account and you want to transfer your balance to an existing card, on the other hand, you can get started with the following steps:
If you prefer to transfer balances with some help from a customer service representative, call the number on the back of your credit card to get started.
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Using The Avalanche Method To Pay Off Credit Card Debt
Where the snowball method attacks the credit card with the smallest balance, the avalanche method reduces your credit card debt by attacking your credit card that has the highest annual percentage rate or interest rate.
While you use minimum payments to pay against all of your other credit cards, you use as much as you can from your available budget to pay off your high-APR credit card.
Once you have fully paid off the high-APR credit card, you use that same monthly budgeted amount in addition to the monthly minimum payment to pay off the next-highest APR card.
The avalanche method works by striking down the biggest contributor to your increasing credit card debt: interest payments. By paying off your highest APR card, you significantly reduce the amount of interest that you must regularly pay each month.
Other Credit Card Payment Options
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Alternatives To Using A Credit Card For Your Mortgage
If you’re struggling to afford your mortgage payment, you may be eligible for various relief and assistance programs. You could try to:
- Contact your mortgage servicer before you miss a payment. Share that you’re struggling to afford your payments and whether you expect it to be a short- or long-term issue. The mortgage servicer might be able to temporarily offer a temporary repayment plan with a lower monthly payment or a mortgage modification if you experienced a significant hardship.
- Look into mortgage forbearance. The mortgage servicer may also discuss putting your mortgage into forbearance. Doing so could let you temporarily reduce or stop making your mortgage payments.
- Get help from a housing counselor. You can use the Consumer Financial Protection Bureau’s housing counselor tool or call the Homeowners HOPE Hotline. A housing counselor may be able to suggest different options you can use to stay in your home.
Mortgage lenders often don’t want to foreclose on a home and are willing to work with a borrower to avoid this outcome. There may be a cost to some of these programs or options, but they’re likely much cheaper than the fees and interest you’ll accrue if you start using your credit card to pay your mortgage every month.
How My Chase Plan Works
My Chase Plan is a fixed payment plan that lets Chase credit card holders pay off certain purchases in installments rather than as part of their regular balance.
Similar to the Pay It, Plan It feature from American Express, My Chase Plan charges a fixed monthly fee instead of interest.
My Chase Plan is available on purchases of $100 or more. Depending on the transaction amount, your creditworthiness, and your account history, you may get from three to 18 months to pay off the balance.
For example, let’s say you have a purchase of $689.85 that’s eligible for My Chase Plan. Chase might offer you three payment options:
- Three payments of $232.18 with a $2.23 monthly fee.
- Six payments of $117.56 with a $2.58 monthly fee.
- Twelve payments of $60.59 with a $3.10 monthly fee.
Once you choose an option, you’ll continue to make your monthly credit card payment, and the My Chase Plan payment will be added to your minimum amount due.
One benefit of My Chase Plan is that you’ll continue to earn rewards on your purchases. Also, if you want to pay off your balance early, there’s no penalty. Finally, if you have an introductory 0% APR promotion on your account, there won’t be a monthly fee if you opt for My Chase Plan payments.
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How Do I Pay Off Debt With The Avalanche Method
With this debt elimination strategy, also known as debt stacking, youll pay off your accounts in order from the highest interest rate to the lowest. Heres how it works:
- Step 1: Make the minimum payment on all of your accounts.
- Step 2: Put as much extra money as possible toward the account with the highest interest rate.
- Step 3: Once the debt with the highest interest is paid off, start paying as much as you can on the account with the next highest interest rate. Continue the process until all your debts are paid.
Every time you pay off an account, youll free up more money each month to put towards the next debt. And since youre tackling your debts in order of interest rate, youll pay less overall and get out of debt faster.
Like an avalanche, it might take a while before you see anything happen. But after you gain some momentum, your debts will fall away like a rushing wall of snow.
Example of the Debt Avalanche in Action
Lets say you have four different debts:
| Type of Debt |
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To use the debt avalanche method:
So, youll end up paying off your accounts in this order:
Monitor Your Credit Score And Credit Card Fees Before You Close A Credit Account
As you pay off your credit cards, take care to closely monitor them, as even credit card accounts with no balance can accrue annual fees and other fees.
However, keeping your credit account open and using it to pay off purchases can drive your credit score higher, while closing accounts reduces your and average age account .
Ideally, as your credit cards are paid off, keep them open if their annual fees and other fees are minimal and if you are not planning on using the card to accumulate debt again. If you do choose to close the account entirely, consider only doing so after you have monitored the balance and your associated credit score for a few months.
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Mortgage Interest Vs Credit Card Interest
If you are thinking about paying for your mortgage using a credit card, you need to absolutely avoid paying interest on your balances. Mortgage interest rates are a tiny fraction of credit card interest rates.
For example, your credit card might have an interest rate of 20%, while your mortgage loan might only have an interest rate of 3% to 4%. If you make a mortgage payment on a credit card and end up carrying a balance on your credit card, thats a surefire way to pay a boatload in credit card interest fees. This pretty much wipes out the value of any rewards you might accumulate.
This is the equivalent of spending a dollar to save a dime.
So if youre thinking about paying for your mortgage with a credit card, you need to absolutely make sure youll be paying off the balance in full every month without accruing interest fees.
For Direct Monthly Payments: No
Paying monthly credit card bills with different credit cards generally isn’t an option. Don’t expect to earn easy points and miles in a never-ending cycle or quickly buy yourself more time to pay off debt this way.
In part, these restrictions exist because issuers want to limit their risk. A customer who pays one credit card with another may be more likely to default on payments.
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Track Your Credit Card Spending
Once you have a budget, keep a close eye on your credit card spending during the sign-up bonus period.
Its very easy to overspend when youre chasing a sign-up bonus, and that can lead to debt, says Harzog. You could not only wipe out the value of the bonus points, but you could end up carrying a balance on a credit card that has a pretty high APR.
The key to meeting a cards sign-up bonus requirement without overspending is charging only what you can pay off and making your credit card payments on time.
If you go a little overboard or notice any unhealthy spending habits, take note of it and hold yourself accountable to avoid repeating it again in the future. Many credit cards let you set balance and spending alerts on your phone, which can make you more aware of exactly where your money is going.
Chase Sapphire Preferred® Card
What If I Need To Use My Credit Card While Abroad
Before traveling abroad, contact your credit card company to find out if your card charges foreign transaction fees. If you are traveling abroad and using your card, you should review your credit card monthly statement to keep track of any incurred fees. Many credit cards waive foreign transaction fees during your first year as a perk but you might incur these fees once the promotional period ends. In order to avoid paying extra fees when purchasing from international merchants online or while traveling abroad, you may want to look into using a travel credit card that does not charge foreign transaction fees or shopping through merchants that accept the US currency.
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How To Get Started
How Can I Pay Off My Credit Card With High Interest
If you want to reduce the balance faster, but can’t afford to substantially increase your monthly payments, try the following:
Even if you don’t qualify for a lower interest rate or promotional credit card offer, call your lender and work out what amount you can afford to pay on the high interest rate card over time, and put that amount on auto-pay. Then cut up your card so that you’re not tempted to add any purchases to the balance.
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Tax Complications And Consequences
It will be very important to keep a record of how much you give and who its going to, says Menard. In 2020, you can give up to $15,000 per person without needing to file a gift tax return.
According to IRS rules, as the donor, you are typically responsible for paying any gift tax due, though you may be able to make an arrangement to have the person youre helping out pay the tax. If the amount you give is an especially large figure, communicate with the person about tax issues.
It will be very important to keep a record of how much you give and who its going to. In 2020, you can give up to $15,000 per person without needing to file a gift tax return.
Dana Menard, Twin Cities Wealth Strategies
Best Chase Balance Transfer Credit Cards For 2021
Chase recently released a new credit card that is ideal for balance transfers. The *Chase Slate Edge offers a 0 percent introductory APR for 12 months on balance transfers .
The Slate Edge also offers a $100 bonus when you spend $500 in the first six months. Additionally, card owners are rewarded for their responsible payment history. After one year of consistent on-time payments, Chase will lower the APR of the card by 2 percenta relatively rare perk in the credit card industry.
The Chase Freedom Unlimited® credit card is another good choice. It offers 0 percent interest on balance transfers and new purchases for 15 months after opening your account. After the 15-month period ends, the cards variable APR of 14.99 percent to 24.74 percent kicks in. Intro Balance Transfer Fee: Either $5 or 3% of the amount of each transfer, whichever is greater in the first 60 days. This card also offers a welcome bonus of $200 cash if you spend $500 on purchases in the first three months of opening your account. Youll also earn 5 percent cash back on grocery store purchases on up to the first $12,000 you spend in the first year of opening your account.
This card offers a solid rewards program, too. Youll earn 5 percent cash back on travel purchased through Chase and 3 percent cash back on dining and drugstore purchases. Youll earn 1.5 percent cash back on all other purchases.
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How To Donate Via The Credit Card Company
Another way is to pay the creditor. Because it will guarantee that the money is applied to the persons credit card account, it may be preferable.
If it were me, I would make a payment directly to the account, says Streaks. Its quicker and easier. You dont have to worry if the money is being used the right way. During this time of coronavirus, people are making online purchases, so when you pay down their debt, you know youre definitely helping them out.
All of the major credit card issuers and companies allow you to make a payment to a different cardholders account, and the process is consistent. As long as we can find the specific account, we can help the individual make their gift, says Brittney Mitchell, public relations strategist for Discover.
In general, you have two options: