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Credit cards are convenient, easy to use, and offer lots of rewards such as travel points and cash back on your purchases. And with inflation still high, Americans are relying more and more on credit cards to make ends meet. In fact, 46 percent of American cardholders carry credit card debt from month to month.
Although credit cards come with attractive benefits, they can also lead to a stressful cycle of debt if you can’t pay off your balance each month. Whenever you carry a credit card balance into the next month, you owe interest on it. And interest can add up quickly.
If you want to get out of credit card debt, you’re in the right place. We’ve put together a list of tips and tricks to help you pay off your credit cards faster.
- There are many benefits to using credit cards. However, you risk getting into a costly cycle of credit card debt if you don’t pay off your balance each month.
- Many financial experts recommend paying off your credit cards one at a time. Making larger payments each month will help you get out of debt faster.
- Credit cards often come with higher interest rates than loans. This can make credit card debt hard to pay off. Consolidating your debt with a balance transfer credit card or a personal loan is one way to reduce the interest you owe.
Here’s what we’re going to cover:
- Why is credit card debt so hard to pay off?
- Pay off one card at a time
- Choose a strategy
- Reduce your spending
- Consolidate your debt
Why is credit card debt so hard to pay off?
Compared to other types of debt, credit card debt can be especially difficult to pay off. That’s due in part to the fact that credit cards usually have higher interest rates than loans.
The interest rate is a percentage of the total amount borrowed that you pay for borrowing money. This is in addition to paying back the original amount borrowed. The extra money you pay is called interest.
If you pay off your total credit card balance each month, you won’t need to worry about interest. But if you carry a balance until the next month, you’ll have to start paying interest on every dollar you owe. This unpaid balance is called revolving debt. As your revolving debt and interest charges add up, it becomes more and more difficult to pay off your credit card debt.
Here are some tips and tricks for paying off your credit cards quickly and strategically.
Pay off one card at a time
The average credit card holder in the United States has four different credit cards. If you owe money on several credit cards, financial experts suggest that you pay them off one by one.
To do this, start by making a list of all your credit cards, their interest rates, and the amount you owe on each card. You’ll want to continue making the minimum monthly payments on all your credit cards. At the same time, put any extra money you have into paying off the debt on one card. When that’s entirely paid, you can move on to the next credit card on your list.
Choose a strategy
How do you decide which card to pay off first? Here are two strategies you may want to consider.
The avalanche strategy
With this method, you arrange your list according to interest rates. Start by paying off the credit card that has the highest interest rate. When that balance is completely paid, you move on to the card with the second-highest interest rate, and so on. This is the most cost-effective method, because it allows you to save money on interest while you’re paying off your credit card balances.
The snowball strategy
With this method, you arrange your list according to how much you owe. Start by paying off the credit card that has the smallest balance. This can be helpful if you’re feeling discouraged about getting out of debt quickly. When the first card is paid off, that feeling of success may encourage you to keep going until you’re completely out of debt. Every card you cross off your list takes you one step closer to your goal.
Reduce your spending
If you owe a lot of money on your credit cards, paying off that debt can take a long time. One way to speed up the process is to make larger payments each month.
But maybe you’re already struggling to make ends meet. Between paying rent, high prices at the grocery store, and everything else you have to cover, how do you find room in your budget for larger payments? By making small changes to your lifestyle, you can free up extra money to help you get out of debt faster. Here are some simple ways to reduce your monthly costs:
- Use coupons at the grocery store
- Ride a bike instead of driving whenever possible
- Buy only what you really need
- Eat out less often
- Pause your subscription services
You can probably think of other small ways to trim your spending. Every dollar you save on expenses can go toward paying off your credit card debt.
Consolidate your debt
You may find it easier to pay off your credit cards if you group all your debts into a single account. This is called debt consolidation. One major benefit to debt consolidation is that you have only one payment to make each month.
Here are two ways you can consolidate your debt.
Balance transfer credit cards
A balance transfer credit card is a popular choice for debt consolidation. Most balance transfer credit cards come with an introductory period when you don’t pay any interest. By transferring your entire debt to this card, you can take advantage of the zero-interest period.
If you’re able to pay off your whole debt within the introductory period, you won’t owe any interest at all. If you still owe a balance after the introductory period ends, you will have to start paying interest again. So before you decide to take out a balance transfer card, check the interest rate to make sure this is an affordable choice for you.
Debt consolidation loans
Another way to consolidate your debt is by taking out a loan. Personal loans are a common type of debt consolidation loan.
These loans offer several benefits. First, personal loans often have lower interest rates than credit cards. By transferring your high-interest credit card debt to a lower-interest personal loan, you could end up paying less in interest. This can save you money and help you get out of debt faster.
Oportun: Affordable lending options designed with you in mind
Now that you understand how to pay off credit card debt, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:
- Personal loans
- Secured personal loans
- Credit cards
- And more!
Consumer Financial Protection Bureau. What do I need to know if I’m thinking about consolidating my credit card debt?