How to Pay Off
Credit Card Debt Faster
Our debt has never been higher. Here’s how to handle it.
We all have more credit card debt than ever before. Literally. Total credit-card balances increased by nearly $50 billion to a record $930 billion in the final quarter of 2019. Unfortunately, the proportion of people seriously behind on their payments increased as well, according to data released by the Federal Reserve Bank of New York. We all want to stay on top of our debt. And the less we have to pay, the better, right? It turns out, there are several options when it comes to paying down your debt quickly. It all depends on how much balance you're carrying and how best you like to pay. Herewith, three proven options.
If your credit is in good standing, this is the simplest and most effective method to pay off your debt faster. Consider transferring your balances to a new credit card with an introductory 0% APR period. Instead of paying down several credit cards, you'll be left with a single payment each month. If you pay off your balance before the intro period ends, you can avoid paying interest. Knowing you have a limited amount of time before the intro offer expires may help motivate you to pay down your debt quickly. Yes, your credit will take a slight hit. But here's the thing: "new credit" only comprises 10% of your FICO rating (the most widely used credit scoring system) according to Credit Karma. Just be sure to read all the fine print. One late payment and your introductory offer could be revoked. Plus, those 0% promotional periods are limited, and if you have a balance when it ends, your account could accrue interest at the card's standard balance transfer APR.
Make a list of your credit cards and rank them from the highest to lowest interest rate. Then prioritize larger sums of money to pay down the card with the highest annual percentage rate (while still making minimum payments on your other cards, of course). Once you pay off the credit card with the highest interest rate, move on to the card with the next highest interest rate and so on. Paying off the highest interest rate balance first will wipe your debit out faster—often saving you a few months and all that additional money you would have spent on finance charges. Especially if your highest interest rate credit card also carries a larger balance. Once you've paid off that first high interest rate card, combine what you had been paying on card #1 with the minimum balance due on the next card you'll be focusing on. That creates a snowball effect that speeds up the pay down process even more. While it can feel like it's slow going initially, this plan will gather momentum fast and do some serious damage to all that debit.
This is a more unconventional method, but works well if you charge a lot of small day-to-day items on your card. Pay off specific purchases each month—a couple of coffees, movie tickets or the shoes you bought as an impulse purchase. It removes them from your overall bill and while it's not a huge amount, it will reduce your debt incrementally, in bite-size portions that you can easily afford. A study by the Wall Street Journal and the University of Pittsburg found that consumers paid upward of 15% more toward their debt when allowed to scan their statement and target specific purchases for repayment. Why does this work? Because it reduces the feeling that your credit card statement is an endless sea of debts. And if feels like you're making real progress toward reducing your balance with each item paid off.