4 strategies to pay off credit card debt fast
If you’re wondering how to pay off debt fast, you’re not alone. One in three Americans carries a balance on their credit cards month to month.1 If you’re one of them, and you want to reduce your balance, the strategies below can help you figure out how to quickly pay off any credit card debt you have.
Target one debt at a time
Do you carry a balance on more than one card? If so, make sure you always pay at least the minimum on each card. Then focus on paying down the total balance on one card at a time. You can choose which card you target in one of two ways:
- Check the interest rate section of your statements to see which credit card charges the highest interest rate, and concentrate on paying that debt off first.
- Pay off the card with the smallest balance first, then take the money you were paying for that debt and use it to pay down the next smallest balance.
Pay more than the minimum
Look at your credit card statement. If you pay the minimum balance on your credit card, it takes you much longer to pay off your bill. If you pay more than the minimum, you’ll pay less in interest overall. Your card company is required to chart this out for you on your statement, so you can see how it applies to your bill.
Simple solution: Pay a bit extra each month. Every dollar over the minimum payment goes toward your balance—and the smaller your balance, the less you have to pay in interest.
Combine and conquer
Consolidating your debt can let you combine several higher-interest balances into one with a lower rate, so you can pay down your debt faster without increasing payment amounts. Here are two common ways to consolidate debt:
- Take advantage of a low balance transfer rate to move debt off high-interest cards. Be aware that balance transfer fees are often 3–5 percent, but the savings from the lower interest rate may often be greater than the transfer fee. Always factor that in when considering this option.
- If you have equity in your home, you may be able to use it to pay down card debt. A home equity line of credit may offer a lower rate than what your cards charge. Be aware that closing costs often apply, but an extra benefit is that home equity interest payments are often tax-deductible.
If you do consolidate, keep in mind that it’s very important to control your spending to avoid racking up new debt on top of the debt you’ve just consolidated.
Reprioritize your budget
- Start by categorizing your monthly spending, for example: groceries, transportation, housing and entertainment. Your credit card statement can be a helpful tool; many issuers categorize your spending.
- Next, look for areas where you can cut back. Then take the money you’ve freed up and apply it to paying down your debt.
- National Foundation for Credit Counselors, 2015