5 Smart Strategies to Pay Your Credit Card Debt Faster

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Diners’ Club, Inc.: Why did I mention that company?

Do you recognize this company Diners’ Club, Inc.? Probably not, but this is the company that introduced the first credit card in 1950 in the U.S, acceptable at multiple establishments. The trend was carried forward by other financial institutions, and soon enough, everyone had a credit card in their wallet. Fast forward to modern times, America’s love for plastic money has resulted in net revolving debt of over $1.3 trillion, with an average American household having credit card debt of $5,700 and credit card balance of $9,333.

The chances are strong that you’re a part of the American population that finds it challenging to pay off this debt. We’re here to discuss some practical strategies for handling credit card debt. Let’s get started.

Identify the problem: What is your current debt situation?

“Identify your problems but give your power and energy to solutions.” ~ Tony Robbins

How much credit card debt do you owe? Which card carries the highest APR? If you do not have answers to these questions, it’s best to start by taking stock of your current debt situation.

What you have to do: We’re going to do this the old way, so either take a paper or create a spreadsheet on your laptop. The key details we need to include are:

  • the name of the card,
  • your existing balance or debt on that card,
  • minimum monthly payment,
  • the APR you’re paying for this revolving credit.

Now, rank your debts in the order of the loan with the highest APR coming at the top. By the end of this activity, you should have a clear picture of the net credit card debt you have and a list of debts carrying the highest interest rates.

Being Smart: Devise a strategy to pay off debt

“Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different.” ~ Michael Porter, American Academic

Having a smart or rather custom strategy to pay off credit card debt is critical in your financial wellness mission. The two famous strategies for repaying credit card debt are Avalanche approach and Snowball approach.

Avalanche Approach: Clear the card with highest APR first

Under the avalanche approach, you take the credit card with the highest APR and dedicate all of your extra cash towards its repayment. This approach allows you to save hundreds of dollars in interest payments. For instance, say if you have a credit card balance of $5,000. A card with an APR of 15.24% will incur interest payments of $762, whereas a card with an APR of 29.96% will incur interest payments of $1,498. By eliminating the second credit card debt, you’ll save over $736 in interest payments.

Snowball Approach: Clear the card with the smallest balance to register your first psychological win

While taking the avalanche approach always seems reasonable, it is often the hardest one. The chances are that you might have a large balance on your card with the highest APR, so it could take a while to clear the debt. Most of the people are likely to give up or lose motivation. Snowball approach is an ideal strategy for these people. Under this approach, you pay the credit card with the smallest balance first, which allows you to tick off at least one item from your debt list, thereby giving a mental boost.

What you have to do: After choosing a debt repayment strategy:

  • Rank your credit card debts in accordance with your strategy.
  • Set automatic minimum payments for every card.
  • Dedicate your entire leftover money to your chosen card.
  • Keep crossing one card after another in your list.

Related Source: Simple Budgeting Tips that Can Help You Save Serious Money in The Long Term

Negotiate: Call your creditors and negotiate for a repayment plan, lower interest rate

One of the first things to do before kicking off with your debt repayment plan is to negotiate better interest rates. Believe it or not but your creditors just want their money back, so they’re likely to agree to a repayment plan that guarantees at least a partial repayment of their money. What you have to do:

  • Call your lender/creditor and discuss your current financial circumstances.
  • Negotiate for a lower interest rate or an affordable repayment plan.
  • Find a balance transfer credit card with a 0% introductory offer.

Debt Consolidation: Is it a good option?

Debt consolidation works for people who find it difficult to manage four or five different credit cards. Under debt consolidation, you can club all of your existing debts together and make a single payment instead of multiple transactions. You should consider a balance transfer credit card with a 0% introductory rate or at least a lower APR. The key is to focus on the length of this introductory offer. Additionally, compare credit cards to find the one with the lowest APR after the end of the initial offer period. Understand that your credit score will be a critical factor in deciding your APR, so tread carefully.

Another strategy would be to take a personal loan to repay your credit card debt. Personal loans come with a lower APR, allowing you to save hundreds of dollars in interest payments.

What you have to do:

  • Consult a financial expert if debt consolidation is the right strategy for you.
  • Find a card with a 0% introductory offer.
  • Make more than the minimum payment to pay it off quickly.

Bankruptcy: The last resort

We already laid out a plan for you to repay your debt, but if nothing seems to work, bankruptcy is the last resort you should look at. However, do understand that bankruptcies stay on your credit report for years, and it could bring your credit score down, between 130 and 200 points. You should seek professional help when choosing the right type of bankruptcy proceedings; chapter 7 or chapter 13 bankruptcy. Since we’re not legal experts, kindly go through the IRS resources for Chapter 7 and Chapter 13 bankruptcy.

What you have to do:

  • Consult a legal expert and find out the right way towards bankruptcy.

Staying Positive: Make gradual progress towards total debt repayment

Out of the hardest things that you have done in life, getting out of credit card debt is likely to rank at the top. It will require lifestyle adjustments, budgetary restraints, and above all, it will need you to reconsider your entire financial life. However, you should focus on the silver lining, a debt-free future, no more creditor calls, and peace of mind. We understand that it’s difficult, but people like yourself do it, so you can do it as well.