Paying off credit card debt in full is a goal sought by all of those who carry it. For many, it can be a recurring nightmare where high interest rates aggressively pull you under water, only allowing you to resurface for a quick breath by making your minimum monthly payment.
The minimum monthly payment keeps you alive, but only to incur more interest and allow the cycle to continue into eternity. Folks, paying the monthly minimum is the absolute slowest way to pay off credit card debt. It will take you more time and cost more money than any of the other options listed in this article.
0% Interest Balance Transfers
If you have a significant amount of credit card debt with high interest rates, one option is to move to a new credit card with a 0% promo on balance transfers. Of course, this is dependent on being approved for another credit card. While 0% interest sounds great – you’d be paying less during the promotional period, there are caveats to be aware of. If you can pay off the entire balance during the promotional period, great. If not, be cautious of what the interest rate may become after the promotional period ends. Also, keep an eye on any balance transfer fees. They could negate the savings you are obtaining by transferring balances. Being able to pay down the principal without interest charges is the most appealing aspect of balance transfers.
Credit Card Debt Snowball
The credit card debt snowball method is based on starting small and growing large. Imagine a snowball starting at the top of a hill, rolling down, and amassing more snow as it travels. You start with the smallest credit card balances you have and put as much extra money into paying them down as possible. Then, you move on to the next largest and so on. What the snowball method does is sets smaller goals first, so you obtain a sense of satisfaction that you’re making progress. After the first balance is paid off, the larger balances look less intimidating as you’ve already proven to yourself you can conquer your debt.
Credit Card Debt Avalanche
Much like the credit card debt snowball method, the credit card debt avalanche method isolates one debt at a time. The avalanche method begins with the largest balance or most expensive debt considering interest rates and works down to the smallest of balances, or least expensive debt. Remember, you’re still paying at least your minimums on other balances, but the most expensive or largest debt receives the lion’s share of your additional cash.
Credit Card Debt Settlement
Credit card debt settlement is the practice of negotiating a payoff or settlement amount with your creditors. This can be accomplished by yourself or there are third party companies that work your debt settlement file with all of your creditors for a fee. Debt settlement is typically used by those in hardships such as a loss of employment, divorce or even credit card debt that has become uncontrollable. Two things to be aware of when seeking debt settlement:
- There are fees associated with using a third party to work on your behalf to settle your debt.
- If part of your debt ($600 or more) is forgiven by a creditor, you will be expected to pay income taxes on the amount forgiven since the IRS considers this taxable income.
Credit Card Debt Consolidation
Credit card debt consolidation is the process of consolidating multiple credit card debts into one monthly payment. Often times, interest rates are negotiated lower based on certain conditions. One common condition with debt consolidation through a third party service is that often times, consumers will need to completely close out individual credit cards to obtain the lower interest rate. This means there is no risk of continuing to run balances up. “Most individuals believe the only true way to consolidate credit card debt is by obtaining a loan to pay those balances off,” says Bill Smith, Director of Communications with the non-profit National Association for Debt Education & Assistance. “While that is one form of credit card debt consolidation, it’s not the only one. There are a number of organizations that will create a debt management plan where you pay one party to disburse payments to your creditors on time every month. Often times with a reduced interest rate,” Smith noted. Two things to be aware of when seeking credit card debt consolidation through a third party:
- Be sure the credit card consolidation company is a 501(c) (3), non-profit organization. They will charge nominal fees, but they will work with you on making the fees affordable.
- In some instances, you will be required to close certain credit cards while you are on a debt management plan.
Even with all the options mentioned in this article, paying off credit card debt can still be a hurdle for some. Before considering any of the options mentioned above, it is wise to find a counselor that works for a non-profit counseling agency to consult with and weigh all of your options.