A credit card can be a powerful financial tool. Credit cards can allow you to earn rewards like cash back that you can use to lower your balance or add to your savings. Using a credit card can also help you build your credit. However, there are also risks to using credit cards, such as the potential to incur significant debt.
If you're feeling overwhelmed by your credit card balance, you may be wondering how to pay off debt — and how to pay it off fast. Carrying a large credit card balance from month to month decreases your credit score, and due to high interest rates on credit cards, you may find yourself in more debt than you expected. Rest assured, you're not alone. Many Americans find themselves thousands of dollars in credit card debt. In 2021, the average credit card balance was more than $5,000.
The key to getting out of debt is paying off your credit card balance as quickly as possible, which you can do by creating a plan you can stick to until the debt is paid off. This article covers several tips for paying off your credit card debt fast.
How to Pay off Credit Card Debt Quickly
Even if paying off credit card debt quickly feels daunting, know that it's possible when you take the right steps. With interest rates and inflation on the rise, your balance may continue to increase, meaning now is the time to pay off your balance. Using smart money tips, you can pay off your debt quickly and get your personal finances back on track. Follow these tips to pay off your credit card debt fast.
1. Create a Budget
Start budgeting to ensure you do not continue to overspend. Categorize your monthly expenses, such as food, housing, transportation, and entertainment. If you're unsure what you typically spend each month, review your bank account and credit card statement. Many credit card issuers categorize your spending, or you can categorize your expenses yourself. Your budget should account for:
- Basic needs: Your basic needs include costs like your mortgage or rent, groceries, gasoline, and utilities. Though you may be able to negotiate some of these bills or find ways to save at the grocery store, these bills are typically fixed from month to month.
- Discretionary costs: Your discretionary costs are for items you would like but don't need. Expenses in this category include entertainment, restaurants, and your daily coffee.
- Debt payments: This category includes your minimum monthly payment on credit cards, student loans, car loans, and other types of consumer debt.
- Miscellaneous expenses: You also have irregular expenses to cover, such as toiletries, car maintenance, travel, holiday gifts, and haircuts. These expenses are more difficult to predict and can quickly add up and become a source of credit card debt.
Understanding how you spend your money can help you identify areas where you can spend less and put more money toward debt repayment. By having a plan for how you will use your income each month, you can better plan for how you will get out of debt.
Some personal finance experts recommend following the 50-30-20 budgeting method, which means allocating 50% of your income to your needs, 30% to your wants, and 20% to savings, investments, and additional debt payments. While in debt repayment mode, you may want to increase the percentage of your income that you allocate toward debt payoff.
You can create your budget in a spreadsheet or use a free online budgeting tool that can sync with your bank account and streamline your personal finances.
2. Pay More Than the Minimum Balance
Paying off credit cards starts with making more than the minimum payment. By only making the minimum payment each month, it will take you longer to pay off your debt. On the other hand, paying more than the minimum means you will pay off your balance more quickly and spend less on total interest. Your credit card company must chart out this amount on your statement, so review your statement to determine how the interest affects your bill.
You can start with a small extra amount, such as an additional $20 a month you can spare. Any little bit helps to lower your balance, and the smaller your balance is, the less you'll need to pay in interest. If you aren't making enough money to cover all your expenses and pay more than the minimum balance on your credit cards, you may want to apply for a new job with better pay or pick up an additional part-time job.
3. Pay off the Most Expensive Debt First
Many personal finance experts consider paying the most expensive debt first as the best way to pay off credit card debt fast. This is known as the debt avalanche method. Other experts recommend the debt snowball method. We'll break down both below so you can decide which is the right method for you. Either way, after you meet the minimum monthly balance on all your credit cards, focus on paying more on one card at a time. Which card you choose depends on the method.
Debt Avalanche Method
The debt avalanche method means you will pay as much as you can over the minimum on the credit card with the highest interest rate first. If you want to use this method, figure out which card charges the highest interest rate and concentrate your efforts on paying down the balance on that card before you move on to the card with the next highest interest rate.
For example, if you have a credit card with a balance of $2,000 and an annual percentage rate (APR) of 24%, while your other credit card has a balance of $500 and an APR of 20%, using the debt avalanche method means you pay off the card with the $2,000 balance first. After you make the minimum payment each month, put your money toward this card until you pay it off. Then move on to paying off the balance on your other credit card.
Debt Snowball Method
Another debt repayment method you can use is the debt snowball method. This method is essentially the opposite of the debt avalanche method. Instead of starting with your most expensive debt, you start with your smallest debt. You'll identify which card has the smallest balance and pay that off first. Then you'll use the money that you were putting toward that debt and apply it to the next smallest credit card balance.
Taking the above example, if you have a credit card with a balance of $2,000 and an APR of 24%, while your other credit card has a balance of $500 and an APR of 20%, using the debt snowball method means you pay off the card with the $500 balance first. This method will provide you with some momentum and improve your morale as you see progress faster.
We recommend trying the debt avalanche method, which will allow you to pay off your most expensive debt first. By paying off this balance, you free up your largest monthly payment, and you'll avoid paying more on that debt over time due to the high interest rate. If all you can afford is the debt snowball method, however, this is an effective debt repayment option too and may give you the quick confidence boost you need to continue paying off your debt.
4. Stop Your Credit Card Spending
Take your credit cards out of your wallet and leave them at home. When you're struggling to pay off your credit card debt, continuing to spend with your credit card may only make debt repayment more challenging and disheartening.
Use Cash or Debit
You can avoid accruing more debt by paying with cash or a debit card instead of a credit card. By leaving your credit cards at home, you can avoid making impulse purchases or overspending. Using cash involves the psychological act of physically handing over money, which can help you spend less. Paying with cash can also mean that certain purchases are so inconvenient, you're less likely to go through with the purchase.
By using cash, you also avoid extra fees that may apply to a credit card. Additionally, using cash may make tracking how much you're spending each week or month easier since you can physically see the difference in the amount of cash you started and ended with that day, week, or month.
Grow an Emergency Fund
Some credit card holders rely on credit cards to cover emergency expenses, such as unexpected medical bills or car repairs. This can quickly lead to overspending and debt that is difficult to climb out of. We recommend saving an emergency fund instead of relying on credit cards to cover large, unexpected expenses.
If you don't have an emergency fund yet, now is the time to start saving one, even before you begin tackling your debt beyond your minimum required payments. An emergency fund will help you avoid acquiring more debt if an unexpected cost does arise.
5. Make Extra Payments When You Can
Paying off debt quickly can also involve making extra payments. Whether that means lowering your expenses, increasing your income, or making a payment with every paycheck, making more than one payment per month can lower your debt significantly over time.
- Take advantage of financial windfalls: When you get a bonus at work, a third paycheck in the month, or money for your birthday or a holiday, put that extra income toward your credit card debt. This can help you achieve your debt repayment goal faster.
- Lower your expenses: Look for spending categories where you can lower your expenses. Cut back on discretionary spending, which is for things you can survive without, such as cable, streaming services, or your daily coffee. Look for monthly recurring payments you can cut out for the time being to increase your monthly positive cash flow. You may also be able to negotiate a lower rate for some of your monthly bills. When you've freed up more of your income each month, apply it to your credit card debt.
- Borrow money: If you're not lucky enough to have any financial windfalls and you've already cut your spending down as much as possible, you may want to ask trusted friends or family to borrow money. Set up a plan to repay the money you borrow and follow through on your plan to avoid damaging your relationship.
- Develop another income stream: If you have already reduced your expenses as much as possible and still don't have income left over each month to pay more than your minimum balance, you may want to consider starting a side hustle to make some extra money. From driving for a ridesharing company or bartending to mowing lawns, delivering pizza, or babysitting in the evenings, you have nearly endless options. You can then apply this extra income directly to your debt.
- Make more than one payment a month: Instead of only paying your credit card down when the payment is due, you can pay money from each bi-weekly paycheck or as frequently as possible to reduce debt faster.
These extra payments can go a long way in helping you pay off your credit card debt more quickly. Once you've paid off your debt, you can use any extra income to grow your savings.
6. Look Into Consolidating Your Debt
When you consolidate your debt, you can combine multiple high-interest balances and get a lower rate on the total balance with a single fixed, monthly payment. This allows you to pay down your debt more quickly without increasing payment amounts. You can consolidate your debt by making a balance transfer or leveraging your home equity. After consolidating your debt, you will only have one area to pay into, which can be easier to keep track of than multiple different cards.
Make a Balance Transfer
Look for a low balance transfer rate and take advantage of this rate to move your debt from high-interest credit cards. You may also be able to find zero-interest balance transfers, allowing you to transfer your balance to a balance transfer credit card with zero interest for a certain amount of time, usually around one year.
Keep in mind that balance transfers often come with a fee, but even with a fee, the lower interest rate may mean you save more money in the long run. Be sure to factor in the fee when calculating whether this is the right option for you. You may also be limited in how much you can transfer, and you can't perform a balance transfer between cards from the same issuer. Before you request a balance transfer, read the fine print.
Your credit score may also affect whether you qualify for a balance transfer credit card. Good or excellent credit is still possible with credit card debt if you maintain a low credit utilization rate and make on-time minimum monthly payments. If you have good or excellent credit, you may even qualify for a zero-interest APR balance transfer. A zero-interest introductory offer can make paying off your high-interest debt faster and easier. Keep the introductory offer term in mind and try to pay off your debt while the zero-interest offer lasts.
Leverage Your Home Equity
You may be able to pay down your credit card debt if you are a homeowner and have built up equity in your house. With a home equity line of credit or home equity loan, you can leverage your home equity and borrow against your home's value. Home equity lines of credit may offer a lower rate than your cards and can make it easier to get out of credit card debt. Keep in mind that you may need to pay closing costs.
Take out a Personal Loan
Another way you may be able to consolidate your debt is by taking out a personal loan. This type of loan is a shorter-term consumer loan that can help you meet your specific financial needs. Personal loans tend to be flexible, allowing you to select the amount you want to borrow.
If you have a large amount of credit card debt that you won't be able to consolidate with a balance transfer, you can choose a personal loan for consolidation instead. If you have a qualifying credit score, you may be able to obtain a personal loan amount that covers your entire balance across multiple credit cards.
Typically, you'll get a personal loan with a set amount over a certain period with a fixed interest rate. Personal loans often come with lower interest rates than credit cards. With Atlas Credit, you may qualify for a personal loan whether you have good, bad, or no credit.
No matter which consolidation method you select, if you choose to consolidate your debt, try to keep your spending under control and avoid taking on new debt, which could undo the advantages of consolidating to a lower interest rate.
7. Find a Payoff Method You Will Stick With
No matter which payoff method you choose, make sure it's one you can stay with. Find a healthy amount to pay each month that you can comfortably afford and stick to it until your debt is paid off. Include the debt as a monthly expense in your budget.
As mentioned above, pay more than your minimum payment each month and follow the debt avalanche or debt snowball method. Both methods have advantages, so be realistic with yourself when determining which way you'll be able to stick to. Will you be willing to wait to pay off your most expensive debt first, or do you need to see progress as soon as possible to stay motivated? Ultimately, whatever the amount or method, make certain it is reasonable and you can stick to it.
8. Enroll in Autopay
Never miss a payment by enrolling in autopay. Automating debt payments can ensure you're paying your bills each month without having to remember each due date, especially if you have multiple credit cards.
Enrolling in autopay is convenient and secure and can improve your credit. Rather than needing to visit several websites or apps each month to make your payments, you can rest assured that the payment will automatically come out of your bank account each month without you needing to make a payment manually. Setting up automatic payments means you can also avoid late fees and boost your credit score by making regular, on-time payments.
To enroll in autopay, sign up directly through your credit card issuer. This ensures the issuer takes the full amount you owe each month. You can also opt to set up electronic alerts so you'll be notified via text or email about when your bill is due.
Apply for a Personal Loans From Atlas Credit
Paying off credit card debt can feel overwhelming, but with our tips and actionable steps in mind, you can tackle your debt. At Atlas Credit, we offer personal loans to consumers like you who need affordable credit. If other lenders or credit card providers have turned you down, we're here to help.
We first opened our doors in Tyler, Texas, and have since expanded to more than 50 locations across the state and added storefront locations in Oklahoma. We have an online presence to service communities in states where we don't have physical storefronts. Our current and future customers are our most valuable resource, which is why we treat each customer with respect and honesty and provide top-tier customer service. Our wide range of loan terms allows us to help you with all your small loan needs.
Apply for a personal loan from Atlas Credit today. One of our customer service representatives will be in touch to verify your information. If approved, you can make the process faster by signing your loan documents electronically.