Last Updated: February 2, 2023
Unresolved credit card debt can cause a lot of stress. By opening a credit card account, you agree to that financial institution’s terms and conditions. The first condition is that you’ll pay back all the money you use plus interest, on time. It’s easy to lose control over how much you borrow. Before you know it, you are wondering how to pay off credit card debt fast.
Not only does credit card debt cause stress, but it can also affect your life in many other ways. It affects your income because of the high interest rates you have to pay and it can have a devastating effect on your FICO score. But how do you get out of credit card debt if you don’t have a lot of money? In this guide, we would like to give you all the information you need to pay off your credit card debt and improve your credit score. We will discuss:
- What credit card debt is
- Consequences of having credit card debt
- How to pay off debt fast
- Mistakes to avoid
What Exactly Is Credit Card Debt?
Individuals can acquire a credit card account from different banks and financial institutions. It acts as a kind of unsecured liability loan that provides the borrower with revolving credit. If the credit is used, the borrower has to pay off the amount borrowed, plus the interest on that amount, at the end of the month. Depending on your stance with the bank, your credit limit will be increased or decreased accordingly.
Some borrowers take out credit cards from a few different credit card providers. This isn’t really advised, as people with many credit cards need to know how to manage credit card debt before fees become uncontrollable.
Unfortunately, if you neglect to make regular payments on this debt you will find yourself in a sticky situation. Maybe you’ve only used $300 of the credit available, but because you neglected to make frequent payments your interest will grow. Therefore, you might end up paying more than $500 in interest within a few months. That’s why you need to plan to pay off credit card debt before interest can accumulate.
Consequences of Credit Card Debt
Some of the industry’s highest interest rates are connected to credit card debt. Not only will you owe much more than you borrowed, but you’ll also lose credibility in the process. Here are a few consequences of credit card debt:
One of the reasons people take on a credit card is because they want cash fast. Initially, having access to money might feel great. Only later you’ll start feeling the burden of the high interest rates. Although there are exceptions with interest-free loans or 0% APR solutions, these cards come with certain limits and conditions.
You’ll always end up paying more than you’ve borrowed since interest amounts add up.
Hurts Your Credit Score
Looking at the FICO credit score calculator – 30% of the calculations are based on the amount of debt you have. Your credit score will be lower when you have multiple credit card accounts. It will hurt your credit score even more if you avoid monthly payments or regularly pay late.
Affects Your Future Income
The more credit card debt you have, the bigger your monthly installments will be. Having to pay off credit card debt with interest every month will result in less available money for other expenses. Cutting costs when it comes to holidays and special events is one bad consequence of having to pay credit card debt. It also means that you will be further away from reaching your future financial goals.
Won’t Be Able to Apply for Future Mortgage Loans
When you apply for a home loan, the financial institution takes into account all the loans you have. If you want to secure a mortgage, you shouldn’t have more than 43% of your income allocated to paying off debt.
It’s important to understand the consequences of credit card debt to avoid being in a situation where you have to get out of debt. Luckily, it’s not impossible. There are many services that help with debt management and consolidation loans for credit cards.
Easy Guide to Paying off Credit Card Debt Fast
To enjoy your financial freedom and keep your annual income, you should find ways to pay off credit card debt fast. There are many different ways you can achieve this. Here is a list of tested and tried methods:
Experts say that a good technique to use to get out of debt, especially if you have multiple credit cards, is to pay the one with the highest interest rate first. Pay the minimum installment on all your credit card accounts. Any money that can be spared should be used to pay the account with the highest interest rate. Once that account has been paid off, you move on to the one with the second-highest interest rate, and so on.
The avalanche method allows you to save money on interest.
The snowball method can be used when you have a bunch of smaller bills coming in every month. These bills can include doctor’s bills, borrowed money from family members, in-store credit, or money owed for products you bought. Start paying off your little debts before moving on to the bigger amounts.
The debt snowball method is one reliable way of how to pay off debt quickly. Seeing little debts disappear quickly will remove some pressure while achieving faster progress in paying off your debt.
Filing for Bankruptcy
Filing for personal bankruptcy is never an attractive choice because it will negatively affect your credit score for 7-10 years. This is only an option for individuals who have crushing debts without any other options of how to get out of that debt at all.
Bankruptcy cases are handled by federal courts, so it’s always best to contact a professional credit counseling service to help you through the process. Always check other ways on how to pay off credit card debt fast before you decide to file for bankruptcy.
Transferring your credit card balance to another card can effectively reduce your monthly installments. Monthly charges on credit cards with high interest rates can cost you a lot in the long run. Look into transferring your debt to a card with a lower interest rate.
You might end up paying a 3%-5% transfer fee, but it’s worth it since you’ll save much more on the lower interest rate.
Debt Consolidation Loans
If you have multiple debts in your name and you have no idea how to pay off credit card debt fast, you can consult a debt consolidation service. A debt consolidation loan is a kind of personal loan that is either secured or unsecured. You will take out one single loan to pay off multiple debts. All credit card and liability debts are combined into one and paid off as a whole. If you only have credit card debt, then you can consolidate all credit card payments. Resulting in lower monthly payments that you can keep up with.
Credit card consolidation loans help with credit card debt and provide immediate relief as you take back control over your finances.
Additional Easy-To-Follow Steps
To be able to pay off your credit card debt fast, you will need to make some additional changes in your financial habits. Here are a few steps you can take:
Eliminate or Reduce Expenses
It’s time to start cutting costs and reevaluating your expenses. In many cases, households spend a lot of their budget on entertainment like dining out or ordering takeaway food.
Start writing down all your expenses and set up a household budget. Eliminating and reducing your household expenses will give you access to more cash to pay your debts.
Avoid Credit Cards
Even though credit cards give us access to fast cash, they can also cause a lot of stress and worry in the future. Avoid applying for a new debit or credit card while you are still paying off your current credit card debt. It is better to save up before making large purchases.
Generate Additional Income
If your current income isn’t covering all your expenses, then you can consider applying for a higher-paying job. The best way to pay off your credit cards is to have extra cash to inject into the debt balance.
Many people get additional income through hobbies and other at-home skills. Whether you want to start selling ready-made meals or offer handyman services over weekends, it will generate additional income which is one of the ways to pay off credit card debt.
Common Mistakes to Avoid
It can be nerve-racking to find yourself in a situation where you have loads of credit card debt. When we are stressed and under pressure, we tend to make a few common mistakes while trying to pay off our debts quickly. Avoid the following mistakes while dealing with credit card debt:
Using Your Credit Card While Paying It Off
If you want to pay off credit card debt quickly, then you need to stop making new debt. It might be tempting to use your credit cards while they are still active. Instead of keeping them in your wallet, lock them out of sight or even give them to a friend for safekeeping.
Starting With the Largest Debt First
Don’t start off by paying off the largest debt first. It’s important to consider other factors like interest rates and APR percentages. Apply the avalanche method to start paying off debt with the biggest interest rate first.
Taking Out a 401K Loan
Even though some people argue that taking a 401k loan is a good plan on how to get out of credit card debt, we don’t advise it. If you can pay it off within a scheduled timeframe, it might not be a bad idea but definitely not advised when you are in financial trouble.
Borrowing money from your retirement savings account – especially if you don’t know whether you’ll be able to pay it back is a serious mistake.
Taking Out a Second Mortgage on Your Home
Using a home equity line of credit is often considered the fastest way to pay off credit card debt. This is because your HELOC might have a lower interest rate than your credit card. Although it is easy to obtain, it can lead to even more debt that is difficult to pay off. In the worst-case scenario it can lead to home foreclosure. You’ll get a large cash injection, but will have to repay it with higher fixed monthly payments – lengthening the term of your original home loan.
When you are in a financial struggle, not knowing how to avoid filing for bankruptcy, it’s best to consult a professional service before making any common mistakes.
Even if you find yourself ridden with credit card debt, not all is lost. It’s important to have a plan. When you want to achieve financial freedom and gain control over your finances, we recommend following our expert tips for paying off credit card debt. When you apply these easy methods, you’ll be able to pay off your credit card debt fast.
Not paying your credit card debt will have some serious consequences. Initially, you’ll be charged late payment fees, negative effects on your credit score, and increased interest rates. When non-payments continue to occur, your card can be frozen and worse – debt collectors can either claim your wages or collateral.
When you want to pay off debt with a personal loan, it’s best to apply for a debt consolidation loan. Debt consolidation is a kind of personal loan that can be used to pay off credit card debt.
When you follow our tips on how to pay off credit card debt fast, you’ll be able to do so in no time. Depending on the amount you owe and your plan for moving forward, you’ll pay it off faster than expected.