3 Ways to Pay Off Your Credit Cards Quickly
In 2013, CreditCards.com found that the average American adult with at least one credit card had an over $5,000 in credit card debt.
Of course, many people use credit cards responsibly, thus skewing results.
This means that most people with credit card debt may actually owe much more than $5,000 or even $10,000.
And while finding more money through means such as budgeting, extra work, and cutting back on fixed expenses can certainly help people on the lower end of the debt scale to get back on track, the reality of debt in America today is often not as simple as one less latte a week and selling some crafts on Etsy. Individuals and families with thousands of dollars of credit card debt need to take on a more aggressive strategy for repaying that debt if they ever hope to achieve financial freedom.
This starts with asking yourself important questions about why you have credit card debt in the first place, followed by choosing an aggressive repayment strategy that speaks to that psychology.
Why Are You in Debt?
There are many reasons that people get into credit card debt. Sometimes it is youthful indiscretion that follows you out of your youth. Other times, serious life events such as medical problems or major home repairs all happen at one time, making even the most carefully stashed emergency fund inadequate. Sometimes, we live beyond our means and don’t know how to stop. Sometimes, there is a deeper addiction at play.
Figuring out why you are in debt in the first place is the first and most important step in getting out of it. This is because the psychology behind your financial problems affects the ways that you are able to pay them back. Shopping addicts, for example, generally don’t do well with balance transfers and consolidation loans that still leave them with debt. Similarly, people living beyond their means need to take serious stock of their life and behaviors outside of spending and choose a whole-life makeover designed for long term financial health.
Furthermore, the stress of debt itself – which is proven to cause health issues, sleeplessness, and relationship problems – may stop you from doing what is “best” or working with your spouse as a team to decrease debt. Engaging in both deep, personal soul searching as well as getting counselling when needed is the best place to start your debt repayment journey.
Common Ways to Aggressively Attack Credit Card Debt
Every financial guru has his or her own “fool proof” method for attacking credit card debt and ridding yourself of it for good. I am, by no means, one of those gurus, so I have no magic method to offer. I can say, however, that experience has taught me that the “best” way to aggressively pay off credit card debt varies from person to person. Also, most “fool proof” methods boil down to one of three common strategies for aggressive repayment.
1. Attack the Cards One at a Time
The most basic credit card repayment strategy has two sub-methods called the avalanche and snowball methods of repayment. In both cases, you simply attack the repayment of debt one credit card at a time and pay the minimums on every other one. The point is to concentrate on one debt at a time in order to promote progress and “see” results. Once a credit card is paid off, it gets put in a drawer and is no longer used until every other card is paid off in full.
Here are the basics of each method:
- Credit Card Avalanche: Start by directing all extra funds to the card with the highest interest rate. This attack saves time and money over the long term, but may not show immediate results.
- Credit Card Snowball: Start by directing all extra funds to the card with the lowest balance. This attack often creates faster results that allow for little victories which, in turn, increase motivation to continue paying down debt.
Clearly, this method is only for those with multiple cards and relies on a solid budget and earnings program outside of debt repayment itself. This is a good method for those who are already on top of their budgeting and bill paying and simply need a little help and a basic plan to get the credit cards paid.
If budgeting isn’t your forte, then consolidation may be a more effective way to attack your balances and get your repayments on track. By putting all of your debt into one place (and one payment) you reduce the likelihood of missing a payment (and incurring late fees) as well as track your total debt in a simple way.
Again, there are two major strategies that fall under this category, each of which appeals to different people’s mindsets as well as their abilities.
- Personal Loan: This is a fixed loan with a fixed interest that you pay off in a fixed period of time. Unlike revolving credit card interest rates, personal loan interest rates stay the same through the term of your loan and vary from 5-6% to 10-20%, depending on your credit score. These loans often result in higher payments than what many people are used to, but if you can swing it, dedicating the higher amount to debt repayment is a great way to stay on track and actually pay everything off in a 3-5 year timespan.
- Balance Transfers: Credit card companies are actually willing to compete with one another for your debt. That’s right, if you are able to play the game and pay attention to introductory interest rates as well as rate hikes, you can use new credit cards with 0% interest on balance transfers. This is not an easy method as it takes a bit of savvy and self-discipline to stay on top of your payments. However, done right, you can pay off all your debt for far less in balance transfer fees than you would have paid in interest.
Though incredibly effective, using consolidation is not for everyone. For one, these methods are only for those with “good” credit scores above 620 and 700 respectively. In addition, they break the rule of “borrowing your way out of debt.” However, for the financially savvy borrower, the type of person who fell on hard times but is otherwise able to manage credit and payments, this is, by far the fastest and least expensive way to rid yourself of credit card debt.
3. Ditch the Plastic Completely
Anyone who knows Cindy’s story knows that one of the methods she used to get out of debt (other than coupons!) was completely ditching credit cards – forever. This method is most popularly advocated by Dave Ramsey, author of The Total Money Makeover, who is known for saying “There is no positive side to credit card use.” He advocates that 80% of financial decisions are behavioral and that there is no emotional attachment to plastic in the way that there is to credit card use.
And because Ramsey counsels those with real behavioral problems when it comes to finance, what he says is valid. Personally, I don’t see life and finance in absolutes, but when you are in debt because of bad choices, getting rid of the vehicles through which you make those choices is the only way to “win” the debt war. Clearly, you need to pay off the balances on the cards you have currently, but Ramsey says to do so only after you cut them up, never to touch them again.
The Credit Card Conundrum
In the world of finance in America the pro-credit card users vs. plastic haters will never agree. However, one thing we all acknowledge is that debt on those cards is NEVER okay. Financial health starts with ridding yourself of credit card debt and aggressive actions are the best ways to make a change that is permanent and sets you up for years of financial health in the future.
**Which of these credit card payment strategies have you used? Did they work?**