5 Tips for Paying Off Credit Card Debt Sooner Rather than Later

Debt: if you have it, you’re hardly alone. As of 2015, 8 in 10 Americans were in debt in some form or another. Debt takes all forms, from student loans to mortgages to credit card debt. On average, the typical American is about $90,000 in debt. This seems like a lot—and it is!—but much of that debt is necessary and productive, enabling Americans to do things like go to school and own homes. However, more burdensome is credit card debt, typically held at much higher interest rates than mortgages or student loans. Paying off credit card debt, then, can be a major priority in peoples’ lives.

If you’ve ever had significant credit card debt, however, you know that it can feel like a massive weight upon you, and it often guides many aspects of your finances as long as you hold it. While it’s completely understandable to have credit card debt, most of us don’t have thousands of dollars just lying in the bank for major purchases.

Credit cards are useful tools that give us unprecedented flexibility in our consumer spending. But having too much credit card debt can quickly become a problem. This may do things like, for instance, impact your credit score.

Here are five tips to help you start paying off credit card debt now, rather than waiting until it might be too late.

Tip #1: Always Make Minimum Payments—Or More

Albert Einstein once called compound interest the “most powerful force in the universe.” Compound interest on debt means that the more debt you have, the more your debt will grow every time the interest is calculated.

Therefore, keeping the total amount of your debt down—and reducing what you have to pay to break even—is tremendously benefited by two things:

1)     Keeping interest payments low

2)     Reducing the principal debt

Virtually all credit cards will have a minimum amount that you must pay every month to stay in good standing with the lending institution. This is often very low, such as $15 or $25 a month.

However, even if the amount itself is small, missing it can be a major problem. Missing your monthly payment may cause the lending institution to think of you as an untrustworthy debtholder, and this may wind up boosting your interest rates immensely.

Alternatively, you may be saddled with fees and fines, which will make it harder to crawl out from underneath the debt mountain. For this reason, you should always be sure to pay at least the minimum amount on every card you own, every month. And pay it on time.

This doesn’t mean that you should only pay the minimum amount, however. Reducing the principal—your debt balance—will reduce the interest added to the balance. So if you have extra money in your pocket and can afford it, paying off your credit card by more than the minimum amount will have dividends.

Remember: Paying off the minimum balance might keep you afloat, but it won’t get you back to shore.

Tip #2: Avalanche vs. Snowball Methods

If you hold multiple sources of credit card debt, it can be a headache to keep up with them, even when making the minimum payments on each. There are two primary schools of thought regarding choosing which cards to pay off first: the “snowball” method and the “avalanche” method.

Snowball Method

In this method, you identify the credit card with the smallest amount of debt and pay it off first while making the other cards' minimum payments.

The thinking behind this is that it will give you some early victories in managing your debt, and the psychological boost will help you continue down the path of fiscal reliance. However, this will leave cards with larger balances waiting until last, so you should do this only if you think you can stick to it.

Avalanche Method

With the avalanche method, you pay off the credit card with the highest interest rates first, making minimum payments on others. This is called the “avalanche” method because tackling higher-interest-rate cards will give you more financial freedom to tackle lower-rate cards, which you save for later.

This tends to be more financially stable than the snowball method but may take longer before seeing some clear progress.

Tip #3: Consolidate Your Debt

One way to avoid juggling multiple credit cards: bring them all into one monthly payment. This won’t necessarily reduce your overall debt level, but it will make it easier to handle.

Many people think you can “rob Peter to pay Paul,” using one credit card to pay off another credit card. However, this is rarely feasible, and many lending institutions don’t permit this. Instead, you could consider opening a new card at a lending institution that offers a debt balance transfer and bring all your other card balances to this new card. If the card provides a grace period, such as six months to a year, without interest, this may be worth looking into.

However, do note that there may be fees associated with this transfer, and you should make sure the costs are less than the interest you would save.

Tip #4: Use a Debt Relief Company

If you feel overwhelmed with the lack of progress made on paying off your credit card debt, you can always turn to professionals. Debt relief companies can consolidate your debt, create a payment plan that stays within your budget or even negotiate your debt down in a settlement.

Different types of debt relief companies have different pros and cons—some may negatively impact your credit score, while others may take longer to pay off. However, if you’re genuinely struggling with paying off credit card debt, getting an expert assessment can be an essential step.

Tip #5: Pay Off Debt ASAP

This may seem a little like cheating, given that the whole point of the article is how to pay off your credit card debt quickly—but the easiest way to avoid building up significant credit card debt is to pay it off as soon as possible.

For some people, that may involve using their credit card for all major purchases and then paying it off with their paycheck in one fell swoop. For others, it may involve weekly payments or paying off each purchase instantly.

This isn’t always feasible. Sometimes, we need to make purchases that we don’t have money for in the bank, like car repairs and hospital visits. But waiting too long to tackle credit card debt will only make the problem worse. Knowing how to manage your debt is a critical part of arriving at true financial independence.

Do you have any major credit card debt?