What’s the best way to pay off your credit card debt?
The thing about credit cards is that there isn’t always a one-size-fits-all plan of action when it comes to digging yourself out of debt. When I first started seriously thinking about how I was going to pay off my credit cards, I began researching my options. Right away I knew some of them weren’t going to work for me.
I was at a far too intense incline level on my high-interest treadmill and the only way for me to get off was to close my eyes and jump. Did I land on my feet? Heck no! I fell flat on my face and then rolled over a few times before finally landing in a pile of AMEX statements and crumpled up, faded receipts. Once I was finally off that treadmill, however, I was and remain determined to stay off.
There are many ways to pay off credit card debt but here are the 6 options I recommend considering if you plan on tackling your credit card debt.
If you’re a credit card veteran, I’m sure you’ve heard them all before, but for those of you who are newer to the credit card debt scene, this list should be helpful. I’ve ordered them so that you can start by thinking about them as steps. If option one doesn’t work for you, try option two, and so on. You can also combine them, like a credit card debt-repayment cocktail! Shake that sucker up and pour.
- Tackle one card first.
- Take a look at your online accounts or gather one statement from each of your credit cards and compare the interest rates as well as the utilization rates (the balance on your card divided by the card’s limit). The card with the highest utilization rate is likely doing the most damage to your credit score, while the card with the highest interest rate is hurting your bank account the most. Decide which is more important for you and your situation and get at it!
- Pay more than the minimum every month.
- This is a great option if you have the extra money available to do so. Break your payments into two per month. The first should be the minimum balance required and the second can be whatever amount you are able to put on your card. If you get paid bi-weekly, this is a great way to keep track of your payments. Since most people tend to keep track of paydays (for example, I have them in my calendar on my phone), add a reminder to make a payment on your credit card that day. You’ll feel less of a dent in your bank account by coordinating your payment date with the days you get paid, and you won’t accidentally spend that extra money on something else.
- Ask for lower interest rates.
- Call your credit card issuer and ask for a lower rate. The catch? Of course there’s a catch! You won’t be able to get a reduced rate if you don’t have a good credit score and you haven’t been consistent with your payments. It also helps to be a long-term customer with the issuer. So if you know your credit score is good and you always make your payments on time, this might be a great option for you. Reducing the interest rate by even on or two percent can save you hundreds of dollars per year. Sadly, I knew my credit score wasn’t good so I didn’t even bother with this one.
- Transfer your balance onto a line of credit.
- This was my first step in my plan of action when I started my debt-repayment journey. I met with an adviser at my bank and she presented me with two possible options. The line of credit was the first. Lines of credit are great because you can get one with a very low interest rate, especially compared to the interest rate you’re probably paying on your credit card. You have to apply for it and be approved, but if you’re approved, you can use it to pay off all of your credit cards at once. Then you can focus on paying off the line of credit, which will be a lot easier and take much less time (because of that low interest rate) than trying to escape the high-interest treadmill of minimum payments.
- Transfer your balance onto a card with a lower interest rate.
- This was the second option my adviser presented. She told me that if I wasn’t approved for a line of credit, the best workaround is to transfer my credit card balances onto a different credit card with a lower interest rate. It works a lot like a line of credit, and helps consolidate your balances so you can pay them off all at once. There are a two key things to remember if this method is going to work for you: don’t use the new card to buy anything and be sure to make your monthly payments on time. You should also be aware that you’ll likely be charged a balance-transfer fee, but the cost might be worth it in the long run for you.
- Since my AMEX was maxed out at the time, which meant I had poor credit, I wasn’t approved for the line of credit and I also wasn’t approved for a new low-rate credit card either.
- Ask your family or a close friend.
- This might be one of the hardest things in the world to do. Mountain biking, hang gliding, and playing real like Frogger on the highway is easier and less intimidating than asking family or a close friend for financial help (for me, at least). If you know someone in your family or a good friend who are great with money, consider asking them for help. This was my last-resort option and might be for you as well. It’s hard to admit you’ve been spending money recklessly, but you might be pleasantly surprised when someone agrees to help you.
I hope this has given you some insight on possible plans of action for your credit card debt situation.