Do you want to learn how to pay off credit card debt?
Credit card debt is a big problem for a lot of people.
It’s easy to put it on the card until you wake up one day and your cards are all maxed out.
But, there are ways to get out of credit card debt.
Before you know how to get rid of credit card debt it’s good to make sure you know how credit card debt works.
How Does a Credit Card Work?
Credit cards are interesting because they are different than other forms of debt.
This can make it more difficult to pay off credit card debt.
With a mortgage, student loan or car loan, you take out the money once and then pay it back.
A credit card is unique because you are continually borrowing money and then paying it back.
You have periods, usually a month, where you build up the balance.
And, if you pay off the balance every period, you pay no interest on your previous spending.
However, if you don’t pay off the entire balance, you will be charged interest on the remaining amount.
Quick Credit Card Example
You spent $400 using your credit card over the last 5 weeks.
The bill comes and it says balance due is $300 for the period which is the first four weeks.
You pay $150 so now your balance for the period is $150 which will be charged interest.
The $100 you spent in the most recent week will be added on to the $150 plus interest and that will be the balance due for the next period.
It’s all of these complexities that make paying off credit card debt difficult.
You might make a payment thinking you’re paying off your debt but it isn’t actually the case.
That’s why it’s so important to create a plan for paying off your debt.
How to Pay Off Credit Card Debt
While paying off credit card debt can be simplified down to moving money from your checking out to your credit card account, there are all types of actions you can do to pay off your credit card debt.
It Starts with Your Spending Habits
If you have credit card debt, it’s likely the result of poor spending habits, specifically overspending.
Before you can even think about paying off your credit card debt you have to develop solid spending habits.
That means spending less than you earn.
A good place to start is by categorizing your expenses into essential and nonessential spending.
After that, you can put your spending in a couple of categories to get an even clearer picture of your spending.
From there, it’s all about creating a budget and setting spending goals.
Another great exercise to reset your spending habits is a no-spend challenge.
Once you’re spending less money than you earn, you’re ready to really start paying off debt with gusto.
Pay Off Highest-Interest Balances First
Credit cards have some of the highest interest rates of all the forms of debt.
Typically, the only form of debt with a higher interest rate is a payday loan.
Remember, how much you pay in interest is determined by the balance of debt and the interest rate.
The higher the interest rate, the more you pay.
If you put all of your extra money after minimum payments towards the credit card balance with the highest interest rate, you’ll save yourself some money and pay off your debt faster.
Create a Plan for Repaying Credit Card Debt
It’s always good to start with a plan. Paying off credit card debt is no different.
You have to create a plan because there are so many moving parts.
Especially if you have multiple credit card balances and forms of debt.
We’ve created some worksheets specifically repaying off credit card debt that you can access in our free resources.
Creating a plan will help you figure out how you’re going to pay off the credit card debt and how fast you can pay it off.
You have to figure out stuff like how much you’re paying in minimum payments, how much extra money you have for paying off debt, and where that extra money is going to go.
Cut Down on Nonessential Expenses
The faster you want to pay off debt, the more you’ll need to sacrifice right now.
If you can cut down on your nonessential expenses, you’ll have more money to pay off debt.
While it may be or feel like a sacrifice right now, it will save you money in the long run and you’ll pay off your debt faster.
Check out our posts on categorizing your expenses, changing your spending habits, and creating a budget.
The best part about this is that you’ll only have to cut back until you pay off your debt.
Leave the Cards at Home
If you have not been able to focus on changing your spending habits, you should remove the opportunity to use credit card debt.
Leave your cards at home so that you’re not tempted to spend more money.
However, this is only a short-term fix.
The best thing to do is to train yourself to be able to resist the temptation to use credit cards.
Defer Bigger Purchases Until Balance is Paid Off
The more money you have throw at debt, the faster you’ll pay it off and the less money you’ll spend on interest charges.
Take a timeout on large purchases that you can wait to purchase in the future.
You’ll end up saving some money on interest charges that can be put towards paying off the balance instead.
Balance Transfer the Amount to Another Credit Card
Open another credit card to help pay off your credit card debt? Sounds crazy.
But, if you can find the right card, it isn’t so crazy.
If you can find a credit card with a lower interest rate and/or a 0% interest period you might be able to save some money and pay off your debt faster.
Just make sure that if there is a balance transfer fee, it isn’t more than the money you’ll be saving by doing the balance transfer.
Take Out a Personal Loan
If you have good credit a personal loan may be a great option to pay off your credit card debt.
Personal loans typically have lower interest rates than credit cards so you be able to save some money on interest charges.
However, make sure that you have the same payoff time length (or shorter) to pay off your debt.
If you extend the amount of time, you might have a lower minimum payment but you’ll end up paying more interest and not actually saving any money.
Debt Settlement
If your situation is really bad, you may want to consider debt settlement.
This is the process of settling your debt with the credit card company by closing the account and creating a repayment plan.
You should only do this if your situation is really bad.
There are negative consequences of debt settlement, including your credit report and score being negatively marked.
Bankruptcy
The last resort.
This isn’t really an option to pay off credit card debt but we did want to mention it.
Bankruptcy is an option if you need to get out of credit card debt and there just isn’t any other option.
It will likely destroy your credit for years and make borrowing in the future very difficult.
Still, if it’s the only option, then it’s the only option.
Final Thoughts
Paying off debt is no fun.
Credit cards are even worse because they have such high-interest rates and are so easy to use.
Still, paying off credit card debt does have to be hard if you know how to pay it off.
Make sure to focus on your spending habits first.
That way you address the root of the problem and not just a symptom.
After that, you can get creative with how fast you want to pay off your credit card debt.
