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How to Pay down Credit Card Debt

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It’s easy to get into debt with your credit card, right? Just pull out your plastic and start swiping. Paying down credit card debt, however — not so easy. Fortunately, freedom from credit card debt is within reach for most people. You just have to commit to spending more responsibly and stay consistent with your payments until the debt is gone. The best way to begin is with a payment plan. Here are some ideas to get you started:


Determine which cards are charging you the highest interest rates

Begin by writing down the current interest rates on all of your credit cards, and organizing the list from the highest to lowest interest rate. This will key you into which cards are costing you more when they carry a balance, and also indicates which cards you should pay off first.

Some of your cards may have time-limited promotional rates (e.g., 0% interest for six months). For these cards, note when the rate expires. In most cases, if you do not pay down the balance before the expiration date, you are responsible for the deferred interest that accrued during the promotional period. Your statement should tell you when the period ends, and how much the deferred interest will be upon expiration if you do not pay the balance in time. You only benefit from the promotional rate if you pay it off within the promotional period! To pay the debt off on time, divide the promotional balance by the number of months you have until the promotion expires, as shown in this example:

Promotional balance: $1,000

Promotional period: 6 months

Minimum monthly payment to pay balance within 6 months (1,000 ÷ 6): $166.67

If that minimum monthly payment seems unmanageable, then pay as much as you can each month, but at least the card’s standard minimum payment, and transfer the remaining balance to a lower rate card prior to the end of the promotional period.


Create a plan to pay down your cards from highest rates to lowest

Once you’ve determined what the interest rates are on each card and the time limits on your promotional rates, you can start creating a plan to eliminate your debt over time. Your plan should include a payment schedule for each card, in which you put the largest payments toward credit cards that have the highest interest rates. You want to eliminate high-cost debt before you pay down lower-cost debt. Makes sense, right?

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The amount you pay toward your credit cards will depend on how much your balance is on each card, how much the minimum payment is on each card, how much money you can divert to your debt each month, and whether you are able to transfer balances. Depending on your personal financial goals, here are a few options for ways to pay down your debt:


Option 1

  • Pay the minimum payment on your lower-interest rate cards.
  • Put the rest of your available funds toward your highest-interest rate card.
  • Once the highest-rate card is paid off, put the funds you were using to pay on that card toward paying off the second highest-rate card.
  • With each card you pay off, use the funds you were paying on the higher-rate card to pay off the next highest-rate card.

With this option, you pay off the debt that is costing you the most first and create a snowball effect with your payments. Here is a video that illustrates how option 1 works.


Option 2

  • Transfer balances from any cards that are not currently 0% to a low-interest, fixed-rate credit card.
  • Put all of your available funds toward paying down the card until the balance is paid off.

With this option, your focus is on consolidating your debt to simplify your repayment. Instead of making multiple payments to different companies each month, you make one, larger payment.


Option 3

  • Do some rate shopping and transfer all your balances to a 0% interest rate card.
  • Put all of your available funds toward paying down the card until the promotional period ends.
  • If the promotional period ends before you are able to pay off the card, transfer the balance to a low-interest credit card.
  • Continue paying down your debt until it is gone.

With this option, your focus is on paying back the least amount of interest; however, like I said earlier, you need to be mindful of when your promotional rate expires. This option does create the possibility of an extra step, because you may have to move the balance again in the future, but if your goal is to pay back the least amount of interest, then it may be worth it for you.

It may be tempting to open up multiple cards with 0% introductory rates, but I wouldn’t advise making a habit of it. Each time you open a credit card, an inquiry is made on your credit report, and every inquiry can have an impact on your credit score. Using your credit to limit the amount of interest you are paying is great, but you want to avoid hurting your credit score in the long run.


One more option…

If you want to rid yourself of revolving debt entirely, you can leverage the debt with your automobile, motorcycle, camper, or other piece of collateral. Securing the debt with collateral can earn you a much lower interest rate than an unsecured personal loan, and it can prevent you from getting caught in a cycle of potentially never-ending credit card debt. Check out how much your potential collateral is worth at, and if you have the equity available, then this may be your lowest-cost route!

Whatever your goal is, and whichever option you choose, make the commitment to stick with it until your debt is paid off. It may take some time, but it will feel great being out from under your credit card debt!


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Tessa Collette

About Tessa Collette

About Tessa Collette Tessa Collette is a Senior Consumer Loan Advisor, and has worked for VSECU since 2011. Her position allows her to help our members navigate the lending world and decide which loan product is best for their goals. Creative lending, where she can lower monthly payments and save members money on interest, is her favorite part of her position.
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