What Is The Quickest Way To Pay Off A Credit Card
We already mentioned the quickest way to pay off credit card debt is the debt snowball method. And this is how you do it:
Step 1:;List your credit card debt from smallest to largest. Pay minimum payments on everything but the smallest one.
Step 2:;Use all the extra money youve got from those earlier tips and attack the smallest credit card debt with a vengeance. Once that debt is gone, take what you were paying on it and apply it to the second-smallest debt .
Step 3:;Once that credit card debt is gone, take what you were paying on it and apply it to the next-smallest debt. The more you pay off, the more your freed-up money grows and gets thrown onto the next debtlike a snowball rolling downhill. Its unstoppable. Youre unstoppable. That credit card debt doesnt stand a chance.
Keep repeating those steps until the debt is completely gone. And dont forget to;close your credit card accounts;after you pay them off. Then go ahead and dance like nobodys watching, even if they are. You did it!
Okayso all of this takes effort, sacrifice, focus and time. What if you could speed it up even more? Learn the plan to do just that in Financial Peace Universityavailable only in Ramsey+. The average household pays off $5,300 in the first 90 days of working this plan. Imagine your life 90 days from now with at least $5,300 of your credit card debt gone. Forever. Check it out in a Ramsey+ free trial!
Dont. Give. Up.
About the author
Ramsey Solutions
Only Paying The Minimum Balance
It’s tempting to send in minimum monthly paymentsoften $15 to $25when you’re under financial duress.;Don’t do it. High-interest;rates;charged by credit card companies;will keep the;bill growing every month. Instead, send the highest payment;you can afford and;reduce spending in other areas to focus on paying off the;debt. It might be worth going without extras like the newest smartphone;or latest fashion;if it means you’ll;sleep easier at night, knowing you’ll soon be debt free.;
It may not feel like you’re saving money when you increase credit card payments, but you are. Depending on the interest rate, you’ll;save;an average of 10% to 29% per year in interest on any balance you pay off. For example, if you pay off an extra $1,000 this year, you’ll;come;out $160 to $290 ahead, depending on the;rate.
Money is probably already tight if you’re already in debt, so freeing up extra cash;will give you some breathing room for the long haul. Whether you use this money to accelerate debt payments, start an emergency fund;or invest in retirement. The power of compound interest will start working in your favor;instead of against you.
Shorten The Length Of Your Loan
Refinancing your debt to a shorter term may help you pay it off faster and save on the total cost of borrowing. With the same interest rate and shorter term, you wont pay as much total interest over the life of the loan. Remember, shortening the term of your loan could increase your monthly payments.
Recommended Reading: How Do I Check My Cabela’s Credit Card Balance
How Making Minimum Payments Can Cost You
Payment history is the most heavily weighted , so making credit card payments on time every month is essential to keeping your credit in good shape. It also helps you avoid late fees.
If you only make minimum payments each month, however, you’ll pay interest on the remaining balance that carries over to the next billing period. Plus, most credit cards charge compounding interest, which can make credit card debt snowball fast and take years to repay.
Say you owe $3,000 on a credit card with an 18% annual percent rate , and your minimum payment is 3% of the balance or $25, whichever is greater. If you make just the minimum payments, it will take you nearly 14 years to pay off the debt. On top of that, it will cost you almost $2,700 in interest, nearly doubling the amount you owed originally.
Balance Transfer Your Existing Credit Card Balance
Top tip
Make sure you pay off your debt before the 0% introductory deal ends, otherwise you might have to pay a high rate of interest on the remaining debt.
One option for borrowers with existing credit card debt is to move it to a 0% balance transfer credit card.
These cards offer a period in which no interest will be charged on that debt. This means every penny of your repayments goes directly towards reducing the size of your original debt.
Youll usually need to pay a fee to transfer your debt over usually around 3% of the balance transferred . So if your outstanding balance is £1,000, it could cost you £30 to switch.
These cards are usually only an option if you have a good credit rating.
If you dont qualify for a 0% deal, look for a card with as low a rate as possible . But remember to look at the balance transfer interest rate, not the APR .
Find and compare balance transfer cards on the MoneySavingExpert website
Don’t Miss: Best Buy Credit
Which Card To Pay Off Debt On First
If youve got debt on more than one credit card, some experts recommend the debt snowball method: concentrating on the one with the lowest balance and making the minimum payments on any other card. Once the low-balance card is paid off, you focus on the card with the next-lowest balance.
Theres also the debt avalanche method: concentrating on the card with the highest interest rate even it if has the lowest balance, because it saves you more overall. However, fans of the snowball method say that paying one card in full can motivate debtors to keep going and thats worth a little extra credit card interest paid.
Decide what works best for you. Maybe a quick victory would motivate you more to pay off debt or make a solid credit card payment than doing the math on the interest paid on a higher-APR card.
And if youre concerned about savings not building quickly enough? Remember that once youve paid off your outstanding balance, all the money youd have been paying in interest can go into your emergency fund.
How To Pay When You Want To Maximize Credit Scores
There is one situation where you may want to pay some of your balance early.
, or how large your balances are compared to your credit limits, is a major factor in credit scores. In FICO Scores, 30% of the points are largely based on this factor.
You can figure out your utilization on a card easily: divide your by the credit limit of the card. For example, if;you have a $500 balance on a card with a credit limit of $1,000, your utilization is 50%.
A lower percentage of credit utilization is generally better. So, if you have a $100 balance on that same card, instead of $500, your utilization is only 10%. This is seen as better by credit scoring models. The only slight exception is 0% utilization compared to 1%, which was covered in the previous section .
With most credit scoring models, utilization doesnt have a history. What matters are the balances and credit limits on your credit reports;right now, regardless of what they were in the past. This is where having a higher credit limit can help you. A higher limit on a credit card gives you more room to work with in terms of your credit utilization.
For example, a $500 balance on a credit card with a $1,000 limit equals 50% utilization. But a card with a $500 balance and a $5,000 limit is only 10% utilized. Even though the balance is exactly the same in both scenarios, the card with the higher limit would likely result in higher credit scores since it keeps your utilization rate lower.
Read Also: How To Get Cash Advance On Cabelas Visa Card
A Practical Example: Johnny Comelately
Johnny Comelately currently has £5,000 saved up, earning 1% interest, in case of emergency, yet he also has £5,000 on credit cards at 18%. While his savings are earning him £50 a year, his debts cost £900. Overall, he is paying out £850 a year.
Now compare what happens if he pays off his debts with his savings, with not doing so:
Situation A:;No emergency happens
- No change.;Keeping both debts and savings costs Johnny £850 a year.
- Pay off debts with savings.;Johnny now neither earns nor pays any interest, thus is relatively £850 a year better off, and all the new cash he puts aside can go towards genuinely saving.
Situation B: After a year he has to pay £5,000 for an emergency roof fix
- No change.;Johnny uses the savings for the emergency. This leaves him with no savings and £5,000 of credit card debt at 18%.
- Pay off debts with savings.;As Johnny has no savings, he has to borrow the £5,000 on his credit cards. This leaves him with no savings and £5,000 debt on his credit card at 18%.
In other words, Johnny is in exactly the same position in situation B, regardless of what he does. Yet before the emergency he was £850 a year better off by paying off his debts with his savings. The risk here is in the meantime the credit card firm cancels his debt facility, but that is rare, and you should have notice.
So overall, whether an emergency happens or not, the best result is to pay off your credit card debts with your savings.
Make Your Payments On Time
You can choose to pay your balance in different ways including:
- online
- in person at a branch
The payment method you choose can affect how quickly it’s processed and the date it’s considered paid. The time it takes to process your payment will vary depending on your financial institution and the payment method you choose. Make sure you know when your payment will be processed to avoid making a late payment.
Contact your credit card issuer to find out how long it takes to process different payment methods.
Read Also: How To Pay Best Buy Credit Card On App
Follow Your Debt Repayment Plan
Paying off debt isnt easy, and consolidating high-interest debt to a low-interest line of credit card is only one step in the right direction.
You need to commit to your debt repayment. Whether youre using the Debt Avalanche or the Debt Snowball or some other method, paying off debt is a marathon, not a sprint!
If you need extra help, use a free tool like Undebt.it to get you to debt free faster.
Always Make More Than The Minimum Payment
Always make;the effort to make more than the minimum monthly payment on your line of;credit, even if the interest rate is so tantalizingly low youre certain you can carry the debt forever without any real consequence. Being in debt a second longer than you have to is always bad.
Remember, credit is not free money and even small balances can be difficult to pay off, so approach any with caution.
However, when used responsibly credit can be a powerful tool to help you achieve your financial goals, and shouldnt be avoided. Particularly when it can actually help you get out of debt faster!
Recommended Reading: Does Chase Settle Credit Card Debt
Can You Pay Off Debt And Save
It is possible to pay off debt while also saving money, but it requires strategy, planning, and streamlining your spending habits.
The first step is to review your budget to see how much money you’re paying toward debt each month. Is there a way to make your debt less expensive so you can pay it off more efficiently? Transferring high-interest credit card debt to a new card with a 0% APR or refinancing student loans, for example, could reduce interest charges and help you pay more toward the balance owed.
Next, see if it’s possible to free up money by cutting back on certain expenses or eliminating them altogether.
With the money you squeeze out of your budget, whatever the amount, decide how much of it should go to debt and how much to saving. For example, if you have an extra $300 to work with and a goal of creating an emergency fund, you might put $200 toward saving and $100 toward debt, which will give you a savings cushion of $2,400 at the end of the year . Or maybe you have a high-interest credit card, which uses the idea of compound interest against you, so you put $250 each month toward paying it off, and the remaining $50 goes into savings. Whatever you decide, putting your money to work will pave the way for your financial freedom.
Debts To Pay Down Later
Should I pay off my mortgage? Which types of debt are better to pay down later? These are questions that can be answeredmost financial experts agree that student loans and mortgages belong in the above category.;That’s in part because some mortgages carry a prepayment penalty if you retire the loan early. But perhaps an even bigger consideration is;how inexpensive these loans are compared to other forms of debt. Thats especially true in a;low-interest-rate environment.
Many homeowners today are paying between 3.5% and 4% on their mortgage. Many federal student loans for undergraduates currently charge a similar rate, at 4.53% on the loan.;
Those rates are even cheaper when you consider that interest on both of these loans;is generally tax-deductible. Lets assume that you have a 30-year mortgage with a fixed interest rate of 4% on the loan. Even if you dont have any other loans with a higher interest rate, you might not want to pay more than the minimum amount due each month.
Why? Because your extra dollars could be put to better use. Economists refer to this as an “opportunity cost.” Even if youre on the extremely conservative side, investing that money into a diversified portfolio gives you a very good chance of returning more than 4% on it.
You May Like: What Is The Annual Fee For First Premier Credit Card
Should You Carry A Balance On Your Credit Card
Many people believe that you need to carry over a balance from month to month on your cards in order to build credit, but thats just a myth.
What actually helps build credit is regularly paying your credit card bill on time. In fact, if you carry a balance, you may end up having to pay hefty amounts of interest with no benefits to your credit whatsoever.
We recommend avoiding carrying a balance whenever possible. In the case that youre unable to pay off your balance in full, ensure you make at least the minimum payment.
If your credit card balances are starting to build up and youre getting caught up in interest payments, you may want to consider a balance transfer card, especially one that offers a 0% introductory APR period.
When You Should Change Your Bill Due Date
If you struggle to have cash on hand when your due date rolls around, most card issuers allow you to change the day your payment is due. This allows you to select a day that works best for you , which could help you make full payments every month.
On the other hand, if you can’t pay in full because of overspending, consider cutting back on non-essential expenses, such as streaming subscriptions or gym memberships.
And if you’re falling behind on payments because of a temporary layoff or cut-back on your working hours, you may want to consider using a 0% APR card;so you can pay off debt over time with more flexibility on when the entire balance is due.
Cards like the Chase Freedom® and Wells Fargo Cash Wise Visa® card can help you finance new purchases without interest for 15 months . Keep in mind that these cards require good or excellent credit. And while they can help you temporarily avoid interest charges, you’ll still need to make minimum payments during the no-interest period.
Information about the Chase Freedom® and Wells Fargo Cash Wise Visa® cardhas been collected independently by Select and has not been reviewed or provided by the issuers of the cards prior to publication.
Editorial Note:
Don’t Miss: Is A Best Buy Credit Card Worth It
Use The Debt Snowball Method
Once you use these other tips to take control of, free up, or make more money, its time to start using that money to pay off your credit card debt. Right away.
Use the debt snowball method and start paying off your credit cards smallest balance to largest. Okay, we know youre thinking all about those interest rates right now. But what you really need is a win. You need one of those credit cards gone. Quickly.
The debt snowball method is all about building your motivation and momentum by attacking one credit card debt at a timeand going after the one you can get out of your life soonest first. That quick win is super inspiring and key to getting out of debt.;
Yes Pay Off Debts With Savings
We can almost hear the dismay at this suggestion: “What? All we hear about is Britons don’t save enough and, here I am, trying to do it and you say don’t! What are you talking about man?”.;So let me explain the basic reasoning straightaway…
It’s that simple. Debts usually cost more than savings earn. Cancel them out and you’re better off.
Read Also: First Premier 95 Dollar Processing Fee
When To Make Multiple Payments On Your Credit Card Bill
If your credit card bill is higher than usual because you’ve made a large purchase, such as new workout equipment or office furniture, your;, or the percentage of your total credit you’re using, will go up. This is most noticeable when you have a lower credit limit.
The change in your balance can potentially lower your credit score since utilization is the second most important factor of your credit score. It’s important to;maintain a low credit utilization rate below 30%, and ideally 10% if you really want a good credit score.
In these situations and any time you have a higher-than-normal balance it can be a good idea to make multiple payments during your billing cycle or simply pay the entire balance before your due date.;Paying your balance more than once per month makes it more likely that you’ll have a lower credit utilization rate when the bureaus receive your information. And paying multiple times can also help you keep track of your spending and cut back on any overspending before you fall into debt.
On the other hand, waiting until your billing cycle closes to make one large payment makes it more likely that the bureaus will see the high balance, since it’s reflected on your statement.