Guide to Get Out of Credit Card Debt Fast

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Credit cards are a big business in the United States. Average credit card debt has been rising over the last decade. Research from ValuePenguin / LendingTree is staggering to see:

  •  41.2% of all households carry some sort of credit card debt
  • Average for balance-carrying households: $9,333
  • Total revolving debt: $1.03 trillion

When you’ve grown used to carrying a credit card balance, finding your way out of debt can be overwhelming. But don’t lose hope! There are many paths and strategies to get yourself debt free. Keep reading, apply these principles, and get out of credit card debt fast!

“Tis against some mens principle to pay interest, and seems against others interest to pay the principle.”

-Benjamin Franklin

Know What You Owe:

The majority of Americans don’t know the interest rates (APR) on their cards, or even the total amount of money they owe. We often think we owe less than what we actually do.

Ask yourself these questions: What are the interest rates on my cards? What are the balances on the cards? What is my total balance owed?

Write these down as a reminder for you each time you pay your monthly bill. You’ll never reach your target goal unless you know how much you owe and where you currently stand.

Know and Understand Your Budget:

Your budget is your total net monthly income minus your expenses. We’re sure you would love to automatically pay more on credit cards each month, but it’s just not possible if your finances are already tapped out. To pay down your debt, you need to apply all the extra money you have each month, and that is the reason you need to know your budget.

We’ve created an in-depth guide to help you with that called Budgeting 101: First Steps to Building a Budget that Works for You. We recommend giving it a read so you have a good idea on where your money stands and where it’s going now.

If you don’t want to take the time manually going through your budget, you can use some amazing apps tailored for that purpose such as Intuit’s Mint or You Need a Budget (YNAB).

Improve Your Interest Rates:

When it comes to debt, credit card debt is often the most dangerous and overwhelming because the interest rates are typically very high. If you are only making the minimum monthly payment, it can take years or decades to pay off your balance. Let’s say you owe $5,000 on your credit card, with an 18% interest rate. The minimum monthly payment would be around $125. Paying only this amount each month would take nearly 23 years to pay off, and accrue almost $7,000 in added interest.

The quickest way for you to lower your credit card bill and balance is to negotiate a lower interest rate on each card. Call your credit card company. Let the know you are not happy and your current interest rate is unacceptable. If they don’t seem likely to work with you, tell them you are switching to another company for added leverage. Reducing your interest rate by even a percentage or two can save you hundreds of dollars or more in interest. 

Try our debt calculator to see how much you can save.

Choose a Payoff Strategy:

If you only have one credit card, your strategy is pretty simple: Make the biggest monthly payment you can based on your budget. If you are like the majority of us, you have multiple cards or debts. To eliminate this, you need to find the strategy that works best for you.

Debt Avalanche Strategy: The fastest way to pay down your debt and reduce the amount of interest, is to put any extra money you have towards your card with the highest interest rate. Any payment you make above the minimum is directly applied towards the principal on your account, lowering you balance, and therefore, accruing less interest. Using this strategy, you will end up paying less in the long run and get out of debt more quickly. Once the first card is paid off, use that money to put towards an extra payment on your next card. Like an avalanche, it may start off slow, but once it takes off,  your debt fall away.

Debt Snowball Strategy: If you are a person who likes more instant gratification and feeling of success, the debt snowball strategy may be more for you. With this strategy, you start with your lowest balance card first. Make only the minimum monthly payment on all your other cards, and put as much extra money as possible towards your account with the smallest balance. Once that is paid off, do the same for the next smallest balance account. Eliminating the debt off your smallest card may give you that extra motivation to keep going and pay off your next debt. Another advantage of the snowball strategy is by paying off a card is you will lower the credit utilization on an individual card, which may improve your credit scores faster.

Do a Balance Transfer: Along with using one of these payoff strategies, you may be able to transfer a balance from a higher interest card to a lower interest card. Reducing the rate on your highest interest debt allows you to instantly focus on the next highest interest account. This results in spending less money and lowering the total amount paid on interest over time.

Consolidate your Debt with a Personal Loan: If you can’t afford to outright pay off your credit card debt, and using one of the above strategies is too slow for you, you can combine your credit card payments into a single payment with a personal loan. Unlike a revolving account like credit cards with a high balance, personal loans don’t hurt your credit score. Personal loans tend to have a much lower interest rate if you qualify, so you end up paying less overall. You also have the convenience of only making one payment a month, instead of multiple payments on cards. We don’t generally recommend opening up new credit accounts, but if you use it responsibly, make your payments and don’t add more to the loan, and don’t use your credit cards while paying off the loan, it can be beneficial to your financial future.

Change Your Payment Method or Frequency:

As stated earlier, making only the minimum monthly payment can take years to pay off. Know what your minimum payment is and double it each month. Doubling your payment will cut years off your debt, and have a huge impact on the amount you will save in interest.

If you can’t afford to double your payment, try splitting your payment in half and pay twice each month. You’ll pay the same amount you planned on each month, but you’ll still save money and pay your balance off faster.

Here’s an explanation: Credit card interest is not calculated by what you owe on your payment due date, but rather by how much you owe each day in your payment cycle. Let’s say your payment is due on the 30th of each month. At the beginning of the month you owe $5,000 and your monthly payment is $125. You split that in half, and on the 15th of the month you make a payment for $62.50. Now your balance is $4,937.50 and you will only accrue interest on that amount for the remaining 15 days until you make your next $62.50 payment on the 30th. 

It may not sound like much at first, but lowering you balance will lower the interest due, and the more you do it, the more you will save.

Adjust Your Lifestyle and Stop Using Your Credit Cards:

In order to pay extra on your credit card balance each month, you will need to find ways to free up some money. If you have taken the steps to prepare your budget, then you will  have already identified areas you can spend less money on each month. This may come from simple things such as limiting how much you dine out or spending less on non-essential drinks like soda, or canceling unused monthly subscriptions.

We’ve compiled a list of great tips and changes you can make to your daily lifestyle in our article 10 Easy Ways to Save Money Today. You might be amazed at the opportunities you have to save money each month. The important part is to prioritize those savings, and use it towards paying off your debt, instead of spending it on other luxuries.

It is also imperative to stop using your credit cards. You can’t pay off your debt if you are continually adding more to it. There’s no need to cancel your accounts, as this can negatively affect your credit scores. Place your cards somewhere safe and don’t carry them on you. Resist the urge to use them and only spend from what you have currently available in your bank account.

It’s time to take control of your finances, rid yourself of worry and stress, and live a debt free life.

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