If you have credit card debt, you’re not alone.
According to Make Lemonade, Americans have over $1 trillion of credit card debt.
Here’s how to pay off your credit card debt faster and enjoy financial freedom sooner.
It can be intimidating to tackle your credit card debt if you focus on the total amount due.
Instead, break up your credit card debt into smaller chunks. If you have multiple credit cards, that’s a natural way. If you have one credit card, you can divide the credit card debt into smaller amounts.
This can make the credit card repayment process more manageable when you think about it in smaller amounts.
For example, it can be daunting to think about owing $20,000 in credit card debt. Instead, think about owing four different chunks of $5,000 each.
While it doesn’t change the math of what’s owed, dividing and conquering can be an easier approach to make headway.
You have several choices how to attack your credit card debt. No matter which strategy you choose, remember to always make at least the minimum payment on all your credit cards to avoid additional penalties and fees.
Once you make the repayments appear more manageable, next you need to focus on repayment.
Which card should you pay off first?
Your best bet is to start paying down your credit card debt with the highest interest rate.
Why? The credit card debt with the highest interest rate means you’re paying the most amount of interest relative to the principal balance.
With credit card debt, your goal is to reduce principal to limit the interest that accrues.
Therefore, focus on repaying not only the interest payment, but also the principal balance.
Once you have paid off the credit card with the highest interest rate, move onto the credit card with the next highest interest rate (and so on).
For example, if you have $10,000 of credit card debt comprised of $8,000 on one card and $2,000 on another, focus on paying off the $2,000 balance first. Why?
While this strategy may not be the best financial decision, it can provide a confidence boost with smaller wins.
Once you repay the credit card with the lowest balance, move on to the credit card with the next lowest balance (and so on).
The downside of this strategy, as noted above, is that it disregards the interest rate and therefore, it can cost you more money in the long-run.
However, the small psychological wins may be worth more peace of mind.
A 0% APR credit card gives you 0% interest on your credit card debt balance for a certain amount of time.
That means you can transfer your existing credit card debt balance to a new credit card.
Many 0 APR cards offer no interest on your credit card debt for 6-24 months, for example.
At the end of the grace period, you will owe interest at an interest rate based on your credit profile and other factors.
Therefore, with 0% APR credit cards, you can get a reprieve on credit card interest and pay off your credit card during the grace period.
You can consolidate your credit card debt with a credit card consolidation loan, which is also known as a personal loan.
With a personal loan, you can consolidate your existing credit card debt into an unsecured personal loan that is typically repayable in 3-7 years.
If you plan to repay your credit card debt in this time frame and can obtain a lower interest rate than your current credit card interest rate, a personal loan is a great strategy to save interest costs.
For example, let’s assume that you have $10,000 of credit card debt at a 15% interest rate. If you can consolidate your credit card debt with a personal loan at a 7% interest rate and 3-year repayment term, you will save $2,634 and pay off your credit card debt earlier.
You can use this free personal loan calculator to see how much you can save on your monthly payment.
Now, go crush some debt.