How to pay off Credit Cards?

Paying off credit card debt can be a daunting task. If you have building credit card debt just know you are not alone as the average credit cardholder has about $8,000 in debt. If you are at a loss about where to start paying off your credit card debt, there are some strategies that may help you tackle the problem in a systematic manner. Having a game plan to pay off your debt is just as important as actually paying the debt off. Without a game plan, you can get easily overwhelmed by the amount of the pressure of paying off your credit card debt. 

Paying off credit card debt should be your main priority especially if you can see it piling up. Credit card debt can get out of control fast and inhibit your ability to take out credit cards or make larger purchases, such as houses or cars, in the future. If you neglect your credit card debt and continue to recklessly spend then your debt will increase quickly and you will see yourself in an irrecoverable situation. What you can do is when you see your debt getting out of control, stop spending and choose a method of paying off your debt. This can help you rationalize your thoughts and implement a tangible plan that can help you pay off your debts quickly. 

Strategies to pay of debts

Debt Snowball Method

The first method for paying off debt is the Snowball Method. This method advocates for paying off your smallest credit card debt first, while making the minimum payments on others, and then roll the amount you have been paying to the next largest card once you finished paying off the original card. This method is perfect for anyone who wants a method that rewards them as you go. You feel a sense of accomplishment that can keep you motivated by ticking off the smaller debts as you work your way up to the biggest debts. You have to make sure you can pay off the minimum payments on all your other credit cards for this method to be effective. 

To properly use this method you have to make a budget for how much money is going to go towards repaying your credit cards. Each month put the extra money you put away to pay off your smallest credit card and keep making payments until that one is completely paid off. Once that card has been paid off use that same money you budgeted on the next largest credit card debt. You repeat this process until all of your cards have been paid for. However, be cautious because this method does not account for the interest you are paying overtime so your debt could become marginally larger overtime. 

Debt Avalanche Method

The Avalanche method focuses on paying the highest interest debt first. While making all of your minimum payments, you would put all other remaining money into the debt with the highest rate so you can limit your overall debt in the long term. This method tries to minimize your overall debt but you will not see the same small victories as you see the Snowball Method. If you are someone who needs those small victories then you should reconsider this method. However, if you do not mind this method seems the most logically applicable as it can help reduce expensive debt first and save you more money overall. It is imperative that you set a budget so that you can plan out how you are going to pay your debts off. Make sure you use calculators or understand which method works for you before trying one out as paying off credit card debt is all about efficiency. 

Debt Consolidation

The first way to consolidate your debt is to transfer all your debts to a 0% balance transfer credit card. This can help decrease the interest rate you are paying on your debts and make it easier to pay off because it is all in one spot. The second way to consolidate your debt is to get a debt consolidation loan. You can use the money from the loan to pay off your debt and then pay back the loan in installments over a set period of time. You have to consider your specific financial situation before you look at consolidating your debt because there are certain conditions this works most effectively in. 

It is a good idea to use this method to pay off your debts if your cash flow consistently covers your debt payments, you qualify for a 0% balance transfer card, and your total debt, excluding mortgage, is less than 40% of your income. If you fall under these categories and find that this method is best for your debt payment needs then you should try it out. However, make sure that you feel comfortable with this method as it does involve applying for different financial instruments that can make the process more complicated. 

However, there are times where debt consolidation is not an effective strategy. Consolidation does not solve the problem of poor spending habits so you need to make sure that your spending is in check before consolidating your debt. It is also not the solution if you have overwhelming debt that you don’t think you can pay off even with reduced payments. If your debt plan is small and can be paid off within the year do not consider debt consolidation as it would be a waste of your time. It is important to consider what works best for you based upon your unique circumstances. 

What if your debt situation is even more serious?

Credit Counselor

You can set up debt management plans with credit counselors to help pay off your debts. You make monthly payments to the agency and they will pay off your debt for you. They usually have lower interest rates set up with lenders to help you save money. However, they usually charge set up and monthly fees so it is important to see if you absolutely need this service to pay off your debts. 

Debt Settlements

Debt settlement companies can negotiate with lenders to settle your debt for less than what you owe. This is risky as these companies charge fees with no guarantee that they will actually save you money. You will still face collection activity which can lead to lawsuits and wage garnishments. Missing payments can also further damage your credit score so you should consider this option as your last resort if your debt has gotten completely out of control. 

Takeaways

There are many different strategies to pay off your debts but it is about finding which one is right for you. Paying off debt can be tricky so we recommend you always have a game plan that can help you logically tackle your debt. Having a plan in mind can help keep you calm and not get overwhelmed by the money you owe. The most critical step to paying your debts off however is creating a budget so you can plan ahead with your money.