5 Strategies to Pay Off Credit Debt
The key to how to pay off debt fast is to develop a good plan and stick to it.
Here are five strategies to help you pay off credit card debt…
Target one debt at a time
Do you carry a balance on more than one card? If so, make sure you always pay at least the minimum on each card. Then focus on paying down the total balance on one card at a time. You can choose which card you target in one of two ways:
1. Check the interest charged calculation section of your statements to see which credit card charges the highest interest rate, and concentrate on paying that debt off first
2. Or, pay off the card with the smallest balance first, then take the money you were paying for that debt and use it to pay down the next smallest balance
Pay more than the minimum
Look at your credit card statement. See the payment information chart? It shows that if you pay only the minimum, you could be in debt for a long, long time.
Simple solution: Pay a bit extra each month. Every dollar over the minimum payment goes toward your balance. And the smaller your balance, the less you have to pay in interest.
Combine and Conquer…
Consolidating your debt can let you combine several higher-interest balances into one with a lower rate, so you can pay down your balance faster without increasing payment amounts.
Here are two common ways to consolidate debt:
1. Balance Transfers Take advantage of a low balance transfer rate to move debt off high-interest cards. Be aware that balance transfer fees are often 3% to 5%, so factor that in when considering this option.
2. Home Equity Loan If you have equity in your home, you may be able to use it to pay down card debt. A home equity loan or home equity line of credit may offer a lower rate than what your cards charge. Extra benefit: Home equity interest payments are often tax-deductible.
If you do consolidate, keep in mind that it’s very important to control your spending to avoid racking up new debt on top of the debt you’ve just consolidated.
Put your money where your debt is
Start by categorizing your monthly spending; for example, groceries, transportation, housing, entertainment. (Helpful tool: The account summary section of your card statement. It shows your spending by transaction category.)
Next, look for areas where you can cut back. Then, take the money you’ve freed up and apply it to paying down your debt