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How To Pay Off Credit Card Debt

American credit card debt reached an all-time high of $930 billion in the final quarter of 2019. The average credit card debt Americans have is about $6,194. If you’re caught up in credit card payments and quickly falling behind, you’re not alone. About 55% of Americans with credit cards find themselves in debt. 

You’re also most likely no stranger to the financial difficulty caused by rocket-high APR’s. Credit card debt is one of the most difficult types of debt to manage and climb out of. However, not all hope is lost. There are several key things you can do to get out of debt. 

Don’t know where to start? Take a look at our guide on how to pay off credit card debt. We’ll explain a few tactics to minimize debt and work your way towards becoming debt-free. We’ll also go over tips on how to refinance credit card debt and whether consolidation is a good idea for your situation. 

How Long Will It Take To Pay Off Credit Card Debt?

One of the most pressing questions people have is how to pay off credit card debt fast. Indeed, the sooner you’re able to get out of debt the better. The longer you wait, the more interest piles up on your balance, and the harder it becomes to pay it off.

Despite the urgency, there are no easy-fix solutions to getting out of debt from credit cards. And the timeline to becoming debt-free varies for everyone. However, the amount of debt you’ve racked up and your income level both play a critical role in your ability to pay down debt faster. 

Making the effort is the first step, and you’re bound to see some positive results almost immediately.  Even if it takes years – don’t get discouraged. Paying down credit card debt is worth it no matter what it takes because it will set your finances free. 

6 Steps To Paying Off Your Credit Card Debt

Everyone’s timeline for paying off credit card debt is different. However, no matter how large your bill is or what your paycheck is, there are some things that will help you pay it off regardless of your financial situation. Here are our top insights on how most people have been able to pay off credit card debt in 6 months. 

Examining Your Credit Card Debt

First things first, you need to assess the situation you’re in before you can work on making any changes. Gather up all your credit card statements and take a deep dive to understand where your highest debts are coming from. Did you tend to open too many store credit cards? Have you rolled other debts onto credit cards? 

You also want to figure out exactly how much you have on each credit card. Next, organize each credit card according to the highest interest rate or the highest balance. Now is also a good time to pull your credit report. You want to get a sense of how your debt is affecting your credit score. This will help you understand your overall financial health as well as which options are available to you for getting out of debt.

You are entitled to a free credit report from each of the main credit reporting agencies — Equifax, Experian, and TransUnion through April 2021 on AnnualCreditReport.com.

By taking an honest approach to understanding your debt, you can begin to make a plan. 

Getting In Touch With Your Creditors

Whether or not you’ve decided upon a single strategy for paying off credit card debt, you can still make progress in the meantime. It’s a good idea to call your credit card companies and negotiate. You can ask to be on a more manageable payment plan, late charges to be dropped, or lower interest rates — you might even be able to settle on a lower balance. 

Call and ask to speak with the debt settlement or hardship department. Explain that you’re struggling to make payments and that you’d like to negotiate. State your terms very clearly. If your creditors agree to any changes, make sure to get everything in writing and read all the fine print. Know that there’s a possibility your creditor may decide to freeze your credit limit or close your account.

Budgeting For Credit Card Debt 

Hopefully, by now you’ve successfully negotiated with your credit card companies and you’re facing more favorable terms than when you started. It’s time for the next step. Planning and budgeting can help you cut down on unnecessary expenses so you can save money and pay off your credit card debt faster. 

To create a budget, you need to know how much money you have coming in and what you’re shelling out. Start by keeping track of your weekly or monthly expenses. You can write down everything you buy in a journal or financial log. You could also seek out budget apps or mobile banking apps that track your spending. 

Once you have a solid picture of where your money is going, try to cut down as much as possible. You may have to forgo entertainment, dining out, or find ways to buy things at a discount. Indeed, getting out of debt often requires living below your means. This part isn’t fun for anybody, but it’s absolutely worth it — especially when you start to see your credit card balance begin to decline.

Another option is to take on extra work to boost your cash flow. You can ask your employer for a raise or embrace a side-gig. Nowadays, there are a multitude of different ways to earn considerable cash on the side. Look into driving for a ride-share company, renting out extra space on Airbnb, selling your old clothes, or even obtaining an online certificate and learning a new trade. 

Paying Down Highest Balances First

Our recommendation for how to pay off credit card debt fast? It’s called the debt avalanche method and it can save you both time and money. This strategy requires you to organize your credit cards based on each one’s respective interest rate. You then focus on the credit card with the largest interest-rate and pay that off first — as it’s accruing the most interest. Keep in mind you still need to make minimum payments on all your other balances. 

Consider Debt Consolidation

Another option is to consider credit card debt consolidation. Consolidation works by taking out a large enough loan, preferably at a low-interest rate, and using those funds to pay off your credit card debt. But is credit card debt consolidation a good idea? 

If you’re struggling to keep track of several credit card bills, debt consolidation is a viable strategy. It can also be beneficial if you’re able to lock in a lower interest rate and drive down the total amount you’ll have to pay. All in all, credit card debt consolidation can help you get organized, pay them off faster, and even save you money in the long run.

There are several ways you can go about debt consolidation. You can take out a personal loan or even refinance credit card debt with a home equity loan. If you decide on either of these options, it’s important to be aware of all the terms you are agreeing to and any additional fees you may be charged.

Another option for credit card debt consolidation is working with a debt consolidation company.  These are non-profit credit counseling agencies that specialize in helping people manage their finances and get out of debt. They offer professional advice like financial planning and paying off credit card debt. 

Read up other debt consolidation methods and the pros and cons of each here

Don’t Get Discouraged

Know that paying off credit card debt isn’t easy. In fact, it’s easy to get discouraged. Make sure to do whatever is necessary to keep yourself motivated, determined, and committed. 

It helps to write down your goals and repeatedly check in on them. It’s also worthwhile to construct a detailed plan and timeline for becoming debt-free. Remember to remind yourself of the progress you’ve made thus far. Know that no matter how long it will take to get out of debt, you are getting closer to your goal every day as long as you stick to your plan. 

Rebuilding and Maintaining Your Credit

If you’ve racked up credit card debt your credit score has probably taken a beating as well. Your credit score is affected by several factors — such as your credit utilization ratio, your debt-to-income ratio, the number of accounts you have open, and more. As you pay down your debt, your score should get a boost over time. 

On the other hand, some actions may negatively impact your credit score. Make sure to refrain from arbitrarily applying for new lines of credit, missing or not making your payments, or closing accounts too soon. You want to keep your most solid accounts open to maintain credit history — as this will look more appealing to creditors. 

As you watch your credit card balance go down and your score go up, try to refrain from making purchases with your credit cards. It may seem tempting, but the last thing you want is a higher balance that setbacks your progress.

How to Pay Off Credit Card Debt and Stay Out of Debt

There’s no easy formula on how to pay off credit card debt. Instead, it takes patience and commitment to the necessary steps. It starts with tackling your debt head-on and coming up with a plan like the debt avalanche method or debt consolidation. From there, it’s up to you to remain focused on your goals and adhere to the plan. With time, your balance will begin to drop and you’re on your way towards becoming debt-free!

Once you’re out of debt, your goal should be to stay out of debt. Avoid the mistakes that got you into credit card debt in the first place – like overspending or mismanaging your funds. If temptation is too strong, it may be best to stop using credit cards altogether. 

You want to develop smart money habits like following your budget and refraining from racking up additional debt. Even little things like paying in cash, finding discounts, making your own coffee, and taking on extra work hours can go a long way. All in all, paying off your debt and avoiding new debt are key for your financial well-being.