Pay Off Your Credit Cards Faster by Doing This
by Dan Caplinger | Dec. 17, 2018
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
Image source: Getty Images
Getting stuck with credit card debt is one of the toughest financial traps to escape. Card companies typically charge the highest interest rates they can get away with, and that means the bulk of each monthly payment goes toward paying finance charges rather than reducing your outstanding balance.
But that doesn't mean paying off your credit cards is impossible. You just have to be diligent and do everything you can to make it easier. The following five-step plan can get you on the road toward being debt-free as fast as possible.
1. Get your interest rates as low as they'll go
One secret that card companies don't talk about very much is that many of them are flexible about the interest rates they charge. The credit card business is competitive, and good customers who both carry balances and are good about making monthly payments are hard to come by. Smart card companies will often cut their cardholders a break if it means holding onto their business in the long run.
To negotiate, just call the customer service number on your card. Be ready to explain why you deserve a lower rate, citing your good history of making regular payments. There's no guarantee you'll always get a rate reduction, but it's worth the minimal effort involved.
2. Look at competing cards
If your card companies won't give you a good rate, then look for a competitor that will. Often, card companies will offer low-rate balance transfer options that can lead to considerable interest rate savings during a 12-month or 18-month introductory period. It's important to take any balance transfer fees into account, but even with that fee, a much lower rate can leave you ahead in the long run.
3. Find a way to pay more than the minimum payment
The primary reason why so many people get into trouble with their credit card debt is that they make only the minimum payment required. Those minimum payments are not designed to pay down your debt quickly. Instead, they often barely cover the monthly interest on your balance, and it can take years or even decades to pay your debt down fully using the card company's minimum payment schedule.
You'll be surprised just how big a difference even small additional amounts can make. For instance, say you have $5,000 in card debt on a card with an interest rate of 18% and a minimum payment of 3% of the outstanding balance. Paying those minimums, it'll take you more than 16 years to pay off your debt, and you'll make almost $10,000 in total payments, including interest. If you can save enough to make payments of 4% of your debt instead, your debt will get paid off more than five years sooner, and you'll save roughly $2,000 in interest. Even if it's only an extra $10 or $20 a month, you can cut years off your debt payoff schedule if you're diligent about going beyond the minimum payment.
4. Pay down the highest-interest card first
If you have multiple credit cards, the best one to pay down is the one that has the highest interest rate. You'll therefore want to devote any available money above the minimum payments on each card toward paying down the high-rate card balance.
The reason is simple: Paying off card debt is basically the same as investing money in an investment that generates a return equal to the interest rate on the card. The higher the rate, the better off you are putting extra money toward that card.
5. Watch your debt snowball away
Again, for those with multiple cards with outstanding balances, the snowball method is a great way to keep up your momentum in getting your debt paid off. Once you pay down your highest-interest credit card, you'll have money freed up that would ordinarily have gone toward making the payment on that card. Use it to make an even bigger payment on your next-highest rate card, and it'll get paid down that much more quickly. By the end, you'll be able to make a sizable payment on your last card until all your debt is gone. And then, since you're in the habit of using a big chunk of your income to pay down debt, you can divert that cash instead toward saving and investing for yourself.
Get yourself moving in the right direction
Credit card debt is a big burden, but it doesn't have to be. By following these five simple steps, you'll be able to get out of debt and put yourself on the path to a more prosperous financial future.
Top credit card wipes out interest until 2022
If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest for a whopping 18 months! That’s one reason our experts rate this card as a top pick to help get control of your debt. It’ll allow you to pay 0% interest on both balance transfers and new purchases until 2022, and you’ll pay no annual fee. Read our full review for free and apply in just 2 minutes.
About the Author
Dan is a lawyer and financial planner. He has been writing since 2006 and covers topics ranging from investing and tax planning to personal finance.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
