If you’re struggling with credit card debt, digging yourself out can feel overwhelming. According to the Federal Reserve, the average credit card interest rate is 17.14%. At such a high rate, your credit card balance can grow, causing you to repay far more than you charged in the first place.
Paying off your debt as quickly as possible will help you save money and you’ll have greater peace of mind. Here are three strategies you can use to pay off your credit card debt fast.
1. Consolidate credit debt with a personal loan
Because credit cards have such high interest rates, one way to tackle your debt is to consolidate your credit card balances with a personal loan. With this approach, you take out a loan for the amount of your credit card balances and use it to pay the cards off. Going forward, you’ll have one loan with a lower interest rate — personal loans often have interest rates between 6% and 15% — and one monthly payment to remember.
Because your loan will have a much lower interest rate than you’d have on your credit cards, you can save a lot of money and become debt-free faster.
See our current picks for the best debt consolidation loans.
For example, let’s say you had $10,000 in credit card debt at 17.14% interest. If you had a $250 minimum payment, it would take you four years and nine months to pay off your debt. Worse, you’d repay a total of $14,750.
But if you consolidated your debt and qualified for a loan with a three-year term at 7% interest, your monthly payment would be just $239. You’d pay off your debt in four years — nine months earlier — and you’d repay just $11,494. Consolidating your debt would help you save over $3,200.
Even better, you can prepay your personal loan early without having to pay a penalty. That means if you get an unexpected windfall (like a bonus at work), you can sock it toward your loan and get out of debt even faster.
But remember, while debt consolidation can be a smart approach, it doesn’t solve the root cause of your issues. If you decide to go this route, make sure you understand how you got into debt in the first place and come up with a detailed budget and repayment plan so you stay on track.
2. Use the debt snowball method
With the debt snowball method, you organize your debt from the smallest balance to the largest one. You continue making the minimum required payments on all of your debt, but you put any extra money you have towards the debt with the lowest balance.
Once you pay off the smallest balance, you roll the minimum monthly payment and any extra you were paying towards the next smallest debt. The idea is that you’ll pay off the smaller balances quickly, which will help you stay motivated and focused on your goal.
While this strategy can be useful, it’s not the most cost-effective approach. Because you’re targeting the debt with the lowest balance rather than the one with the highest interest rate first, you’ll end up paying more in interest charges.
3. Use the debt avalanche method
The debt avalanche is a way to bring down your debt while minimizing your interest charges. With the debt avalanche, you list your debt from the one with the highest interest rate to the one with the lowest rate and tackle it in that order.
Like the debt snowball, you keep making the minimum payments on all of your debt. But with this technique, any extra money you have each month will go toward the debt with the highest interest rate rather than the one with the lowest balance. Once you pay off your debt with the highest rate, you'll roll that payment toward the debt with the next highest interest rate. You’ll pay off the highest interest rate debt first, which will help you save money.
This approach is more cost-effective than the debt snowball, but it has two drawbacks:
- If you have multiple debts with high interest rates, you'll only make serious progress on one at time. Meanwhile the other accounts will continue to accrue interest charges, which could slow you down and cost you a lot of money.
- This approach can make it hard to feel like you’re making progress quickly, which some people may find discouraging.
Managing your debt
Dealing with credit card debt can be frustrating — and expensive. But if you come up with a repayment strategy that works for you, you can save money and get out of debt earlier than you expected.
If you decide that debt consolidation is right for you, consider taking out a personal loan from Citizens Bank. The company offers low interest rates, a quick approval process, and will disburse your loan in as little as two business days.