We all know how easy it can be to rack up debt.
According to a study from the financial data website ValuePenguin. more than 40% of American households carry a credit card balance that’s $8,000 or more.
Credit card companies claim to help you when you need it, but here’s the tricky part about credit cards: They are tempting with all their perks, but they really only benefit you when you’re building credit. Paying a lot of interest on your balances just helps credit card companies make money off of you.
Basically, when you use a credit card, you are the one to get used.
So, let’s get those cards paid off!
Important: Before you start, stop using your credit cards altogether until you can use them wisely. A great tip my mother always told me was to only charge what you can pay off at the end of the month.
First, determine how much credit card debt you have.
You can do this by using a free credit monitoring service like Credit Karma to find out all the debt you have. They also have tips on how to fix your credit as well.
Now that you know what you need to pay off, let’s figure out what’s the best plan for you. Here are five different methods for paying off your credit card debt:
1. Pay Off in Tiny Amounts
You might want to tackle your debt bit by bit. By breaking your debt down into manageable chunks, you’ll experience quicker wins and stay motivated.
Two popular ways to break down debt repayments are the debt avalanche and debt snowball methods.
The Debt Avalanche
When you use the debt avalanche method, you’ll list your credit card debts from the highest interest rate to the lowest. You make minimum payments on all your cards, and then, take extra income you have will go toward the highest-interest card.
When that card gets paid off, you take on the debt with the next-highest interest rate, and so on, until all your cards are paid off.
The Debt Snowball
With the debt snowball method, you’ll list your debts from the lowest balance to highest, regardless of the interest rates on the cards. You make minimum payments on all your cards, then take extra income to pay towards the credit card with the smallest balance instead of highest interest.
By using this method, you experience wins faster than you would with the avalanche.
Deciding on which method to use depends on whether you’d rather get quick results or save money on interest.
2. Balance Transfer
For those who have good to excellent credit 670 or above and can feasibly pay off your debt within a year, a balance-transfer credit card would be a good option. When you use a balance-transfer card, you can save on interest when you transfer the balance of a card with a high interest rate to a card with 0% interest.
The catch is, most cards offer 0% interest for 12 to 18 months with no annual fee.
3. Take out a Loan
Taking out a loan may be the right choice for some people with multiple cards at high interest rates. If your loan comes with a lower interest rate, you can eliminate multiple payments to all credit cards, and pay one interest rate which could save you thousands of dollars in interest.
This way would be favored if you don’t have extra money to pay off debt.
4. Financial Programs-Derby Advisors
If you are not in a situation where you can do any of the above methods to pay off your credit card debt, you may want to ask for help. There are many reputable finance advisors out there. Do you homework first before signing on with a company.
Now, there are several options for those who are to the point (or, almost) of getting harassing calls from their creditors and they don’t know what to do:
Debt Management Program
With a debt management program, a credit counseling company will handle your consolidation to help get you a better interest rates and lower fees. A counselor will set up a repayment plan for you.
In return, a debt management program pays your creditors for you. But if you miss a payment, you can be dropped, and you’ll lose all the benefits you gained.
Debt management plans can help reduce your interest rates by as much as half or extend your payment timeline to make paying your debt more manageable.
Credit Card Debt Settlement
If you are in a financial situation where you don’t know if you can make payments at all, a credit card debt settlement may be your only choice.
Debt settlement reduces the amount of debt you owe, but the process is lengthy and will have a negative impact your credit report. Most people seek the help of a debt settlement company, and like a debt management program, a debt settlement firm will negotiate debts on your behalf, and the company will make lump-sum payments to creditors while you make monthly payments to the debt settlement company.
But, there’s no guarantee the company will be successful. If it isn’t successful in negotiating, you’ll still be responsible for the full debt amount, plus any extra interest that accrued.
The settlement company will also charge you up to 25% in fees on top of the settlement.