Paying Off Credit Card Debt | BankruptcyHQ
You’re not the only one struggling in paying off credit card debt. According to Experian, 61% of Americans have credit cards, and the average cardholder has a $6,194 balance. It can be worth having a card that offers you the chance to get a lot of rewards. However, if you have a high-interest balance and pay high interest, all those savings will go to waste.
There are many ways to pay off your credit card debt. However, not all options are the same. Before deciding on the best way to repay your debt, it is essential to think about interest rates, fees, and how much you can afford.
BankruptcyHQ outlines the best ways to get rid of credit card debt.
How to pay off credit card debt
- Balance transfer credit cards are available
- Consolidate your debts with a personal loan
- Borrow money from your family
- First, pay off high-interest debt
- First, pay off the smallest amount
Balance transfer credit cards are available
A balance transfer is a smart way to get rid of debt. Transfer debt from high-interest credit cards to a balance transfers credit card which offers no interest for up 20 months.
The Citi Simplicity® Card offers an intro 0% APR on balance transfers for the first 21 months (14.74% – 24.74% variable; balance transfers must be completed within four months).
You can’t transfer debt between balance transfer cards. Before requesting a transfer, make sure to read all the fine print. A balance transfer credit card is usually only available to those with good credit.
Consolidate your debts with a personal loan
Personal loans are a great alternative to balance transfers for those with a lot of debt. You can consolidate your debt into a personal loan if it is spread across multiple credit cards. Depending on your credit score, you may be eligible for a loan amount that covers your entire debt.
Personal loans allow you to borrow a set amount of money for a specific time and a fixed rate. Personal loans have an interest rate usually lower than your credit card balance, but they are not always 0%.
Borrow money from friends and family
A personal loan or balance transfer credit card may not be available to you if your credit score is below 580. You can also ask a close friend or family member for a loan.
To avoid any financial problems in your relationship, make sure you have a repayment plan and stick to it.
First, pay off high-interest debt
If you have multiple credit cards, it’s a good idea to pay off the highest interest card first. This is known as the avalanche approach to debt repayment. This will allow you to reduce the interest you pay, saving you money over the long term.
If you have completed a balance transfer but could not transfer all of your debt to the intro APR card, you can first pay off any remaining balances on high-interest cards. However, make sure that the minimum is still paid on your balance transfer card. Once the high-interest balance has been paid off, it’s time to start tackling the balance transfer card debt more aggressively.
If you have consolidated debt, such as a personal loan, loan from family members, or loan from friends, pay off the highest interest balances first. Let’s say that you have two credit card accounts with $1,000 balances. One card has a 25% APR while the other has a 15% rate.
Once you have paid the monthly minimums, you can put the money you borrow towards the card’s balance with the 25% interest rate. Any remaining funds can then be used to pay the lower APR balance.
First, pay off the smallest amount
The snowball method of debt repayment is an alternative to the avalanche. First, paying the lowest balance can help boost your confidence and get you on the road to debt repayment. Let’s suppose you have a $5,000 card balance and a $1,000 card balance. It may appear that you are barely paying down $6,000 if you first pay off the $5,000 balance.
If you pay the $1,000 balance first, it will be easier to track your progress and feel more confident in your ability to repay credit card debt.
Financial advisors do not recommend the snowball method because it can lead to higher interest rates than if you pay off high-interest debt first. However, it is important to have a debt repayment program that you can stick with.