As you know, credit cards help out and serve a great purpose for conveniently making payments and combining all your expenses for that month in one place. On the flip side if you’re not fully paying off your cards each month then the debt can pile up super quick. You can get yourself in a financial spiral that’s like heading down a black hole. If you’re asking How Can I Pay Off My Credit Card Debt? read on…
Key Factors:
- Unless you pay your credit card bill in full each month you are charged interest
- American carried a total of $841 billion in credit card debt in the first quarter of 2022
- The average credit card interest rate in America today is 20.17% but at the highest, it can be 36%
- Your credit card may charge different interest for different charges i.e. purchases vs cash advances
- Your credit rating can mean you’re offered a different interest rate – good credit score: lower interest rate – bad credit score: higher interest rate
- On average, American households have about $5300 in credit card balances
The words ‘ spiraling into financial debt’ sound pretty scary and the reality is no better. The good news is that you can start today to get your debt under control. Read this…Eliminate Stress of Credit Card Debt
Figure out How Much You Owe
If you’re not paying off your bills each month and don’t really look at those monthly statements from your credit card company you could be in for a shock. So, knowing how big the potential problem could be is the best place to start.
Read your monthly statement and not only check what your balance is see how much of that is interest on past purchases. You could be paying mostly interest and late payments and again it’s equivalent to tossing it into a black hole never to be seen again!
Stop Growing Your Debt
The best way is to pay off your credit card bill in full. That clears all debt and stops you from paying more interest (or throwing your money into that black hole I mentioned). You could use savings to do this.
If you can’t pay all of it off at least pay off a big portion of it.
The most obvious is to stop paying for things with your credit cards. Yes, that includes Apple Pay and Google Pay which are linked to your credit cards!
There is another option. Use a 0% balance transfer to another credit card. These often give you a period of no-interest but they also charge a fee to transfer the balances. This fee can differ from card to card so check out a couple of them.
Paying More Than the Monthly Minimum Can Help
Your credit card statement will show a monthly minimum payment that helps you avoid extra charges. This minimum is often a percentage of the total you owe. But, paying more than your minimum will help clear your credit card debt faster too.
For example: If you owed $2,000 in credit card debt with an interest rate of 18% and you set up a direct debit to pay your monthly minimum. (Remember we are just talking about $2000 not additional charges heaped on each month.)
So, if you paid the minimum each month, at an APR of 18% interest it could take 24 years (give or take a couple) to pay off your debt. The interest you’d pay would be around $2500! This is assuming the minimum payment is charged at around 2% of the outstanding balance. It could be anywhere from 1-3% or it could be just $20-25 which could be even worse!
You get the picture. Credit Card debt can get out of control quickly. The more you pay back each month the quicker you’ll pay down your debt and you’ll decrease the interest rate too.
Figure Out a Plan to Repay Your Debt
First, look at your financial requirements each month versus your income so you know how much you can afford to pay back and when
For this, a budget is key. Write it all down and don’t leave anything out even the coffee you buy each morning.
You could also identify any areas where you could save money and put that towards your card repayments.
If you have a 0% interest credit card, you won’t be charged any interest for a specified number of months. This means you have until the end of this period to clear your balance and avoid paying any interest. Divide your credit card balance by the number of months left in your interest-free period to work out how much you have to pay each month (as a minimum) to pay off your card.
For example, if you owe £1,500 and have a 20-month interest-free period, you’ll need to repay at least £75 a month to clear the debt by the end of the 20 months.
Pay off Your Credit Card Balance
Of course, paying off your balance in full is the best way to avoid late charges and tons of interest.
Perhaps you’ve chosen to pay your minimum monthly balance automatically through your bank when you set up auto-payments. If you didn’t realize how the interest was piling up. It’s easy to go into your account and change from a minimum monthly payment to paying in full. Do it now if you can.
Setting up auto-payments makes sense. It’s too easy to get busy, lose track of time and forget to pay. If this happens repeatedly it can affect your credit score too. Not good.
Balance Transfer Credit Cards
By using the 0% balance transfer option you could be saving enough on interest to pay off more and more of your balance on a monthly basis. Look for the cards with the longest 0% interest period to give you the best chance to pay off your balance in full.
This is particularly helpful if you have several credit cards that are carrying debt and costing you a huge amount of interest each month. Just keep an eye on the credit limit on this new card and don’t go over it. That could be interest and fees. The things you were looking to avoid.
There is usually a balance transfer fee so shop around and find the best fee and longest 0% interest period. Remember to budget for paying it off in full by the end of the 0% interest schedule.
I Want to Clear My Credit Card Debt Faster
The best three ways to clear your debt faster are:
- Pay off more than your monthly minimum. In fact, pay off as much as you can. Sometimes that could mean using your savings. Take a look at what interest your savings are earning you right now and compare it to what your debt is costing you in interest. If you don’t urgently need the savings for something else right now you’re paying way more interest on a credit card than a savings account could earn you.
- Take down that interest rate by choosing a 0% interest balance transfer card.
- The best option is to pay it off in full ASAP once any higher priority payments are taken care of i.e. home mortgage, medical expenses, utility bills, etc.
I Can’t Afford my Repayments What Do I Do?
Talk to your credit card provider and they could help you with a repayment plan that could include a payment holiday.
Bottom Line:
Credit card debt can get out of control but there are ways to tame it. Start with a budget and try the tips above to tame your debt.
