5 Tips To Get Out Of Credit Card Debt Quickly
If you don’t know how to get rid of credit card debt, you’re not alone.
The average American household carries $16,883 in credit card debt, with the national consumer debt totaling a staggering $784 billion.
While the road to living debt-free is not easy, it is not impossible, either. With a lot of diligence, you can regain control of your finances and free yourself from credit card debt.
Here are 5 ways you can learn how to pay off credit card debt – fast.
1. Start Budgeting
Before you can start paying off your debt, you need to get your budget in order. If you don’t have a budget, now is the time to create one. There are a ton of free resources that can teach you how to budget and how to pay off your credit card debt, like Mint.com, which tracks and categorizes your spending, as well as set financial goals.
Once you start tracking your spending, you get a real picture of how much of your money goes to luxury expenses, like eating out and shopping, when you could be using that money to pay off your credit card debt instead.
Related: 5 common causes of credit card debt
You’ll also be able to see where you can cut back on your regular expenses, like gas, pricey grocery bills, or even subscription services. Something as simple as turning down your thermostat or switching from name-brand foods to generic could help you put a thousand dollars toward your credit card over the course of a year.
Budgeting is the best way to get a clear idea of how much money you need in order to meet your basic necessities. Once you do that, you’ll be able to see how much is left over to pay down your credit card balances. This is a lifelong skill that will not only show you how to get rid of credit card debt, but will also keep you from going down this road again in the future.
2. Balance Transfers for Lower Interest
If you’re carrying a balance on multiple credit cards, a balance transfer can help you consolidate your credit card debt into a single payment with a lower interest rate.
Credit card debt is extremely hard to pay off because the interest compounds, which means your balance continues to grow each month even if you aren’t using the card. If you can transfer your credit card debt to a zero-interest card, you can finally stop putting your money toward interest payments and start paying down your debt.
Balance transfer cards usually give you 12 months or more to pay off your debt without racking up any interest, which can help you pay off your credit card much quicker than you would with an interest-bearing credit card. You’re also less likely to miss a payment when you have a single card to manage instead of multiple credit card bills.
Before you get a balance transfer credit card, just make sure you are realistic about your repayment goals. Since you have a limited time with low interest, you’ll want to make sure you can pay off your credit card debt in that time or you can apply for a new balance transfer card. It’s also important to know that most balance transfer cards also charge transfer fees, which will increase your balance. This is a one-time charge, though, and one of the most popular ways to pay off credit card debt.
Related: 5 ways to start paying off debt today
3. Negotiate Better Terms
If you want a better interest rate on your credit card, you’re going to have to ask for it. Many consumers think they are locked into their credit card terms, but many banks are willing to negotiate rates. With just a simple call, you can get a better deal on your terms and pay down your credit card debt faster.
The bank isn’t required to give you a better rate, though, so here are some ways to improve your chances of success:
Know your numbers. Get a copy of your credit report and FICO score before you call the bank. This way, you can highlight all of the ways you are a responsible customer who deserves a better rate. And if you haven’t always been an A+ customer, let them know the changes you’ve made and how a better rate will help you.
Shop around. Information is power, and it’s in your best interest to know what your bank’s competitors are offering. The bank wants to keep your business and you’ll be able to negotiate a better deal if you know what else is out there.
Related: 6 spending mistakes everyone makes
Be nice. By asking for a lower rate, you are essentially asking the bank to do you a favor. This process may be frustrating and dealing with debt is stressful, but you’ll have a better chance of getting what you want if you keep your cool.
4. Never Miss a Payment
The absolute worst thing you can do when paying off your credit card debt is miss one of your monthly payments. This can have disastrous consequences on your credit score, cause your interest rate to skyrocket, and your balance to balloon.
When you miss a payment, your credit score takes a hit, which means it can be harder to qualify for a balance transfer card or better terms with your lender. In general, you need your credit score to stay close to 700 in order to qualify for a balance transfer card, although you may be able to get a personal loan with a score that’s closer to 600.
Paying your credit card late can also reset your interest rate to a penalty APR, which can be as high as 30%. If the penalty APR is triggered, you’ll pay significantly more in interest and, thanks to compounding interest, your balance will get even higher.
If you’ve just missed a credit card payment, call your bank or issuer before it’s too late – sometimes they will go easy on a first-time offender. It’s better to work out a solution before you get stuck in this cycle.
5. Pay Off the Smallest Debt First
If you have multiple credit cards and choose not to do a balance transfer, you can try what’s called the “snowball” method. Just like a snowball rolling down a hill, you’re going to start small and then quickly gain momentum. Here’s how it works:
First, you list all your debts in order of smallest to largest. Then you make a plan to launch a full-blown attack on the smallest debt. The payoff schedule will be incredibly aggressive. During the snowball process, you keep making the minimum payments on the other debts, but you take every extra penny and dollar you have and throw it at the smallest debt until it’s gone.
Once the smallest debt is gone, you take all that money and anything else you can find and attack the next debt on the list. You’ll keep going until every single debt is gone.
The snowball method is very effective for a few distinct reasons. First, it teaches you how to tighten up your spending and learn how to pay off debt. It’s also immediately gratifying because you make such quick progress. Once the smallest debt is out of the way, you’ll see the plan is working and you’re more likely to stick with it. And if you stick with this plan, you will become debt free.