Paying down a credit card can be daunting. With sky-high interest rates adding to your balance each month, your credit card account can start to feel like a never-ending cycle of debt. Rest assured that you’re not alone in this predicament. Recent data shows that 44 percent of American households carry credit card debt. Further, those with credit card debt owe an average of $15,983. If you’re getting ready to pay down your card, here are a few strategies you can use to hit that zero balance as soon as possible.
TL;DR (Too Long; Didn't Read)
There are several methods one can use to pay off a $3,000 credit card balance. They include making more than the minimum payment each month, transferring the balance to a card with a 0 percent introductory APR and using cash from your savings account.
Cash is Your Friend
If you want to pay down your credit card debt, a great first step is to stop adding to your balance. Pay with cash or your debit card whenever possible. This will keep your balance from getting larger each month. You’ll be able to pay off your debt more quickly, plus you’ll spend less on interest. If swiping your credit card is too tempting, leave it at home or lock it in a safe place so you don’t use it while paying down your debt.
Go Above the Minimum Payment
In the U.S., 29 percent of credit card users make the minimum payment on their accounts each month. But paying only the minimum can keep you stuck with a high balance that never seems to get smaller. Of course, you must pay at least the minimum each month, or you’ll be charged late fees, and your credit could suffer. If you’re trying to pay off debt quickly, experts suggest going above the minimum and making higher payments on your account.
Many companies, such as Capital One, offer credit card calculators to help you figure out how long it will take to pay off your debt. Try calculating how long it will take to pay off your card using your minimum payment. You'll be amazed to see how many years and how many thousands of dollars in interest you can incur. Even a small amount above the minimum can shave years off your debt. The more aggressive your payments, the sooner you’ll reach that zero balance. Set aside as much money as you can afford each month for your payment, and watch your balance disappear.
The Avalanche Approach
If you have multiple credit cards carrying a debt, experts suggest focusing on the card with the highest interest rate. This is called the avalanche approach. Many consumers focus on their overall card balances rather than the interest rates they’re paying. This can be a costly mistake. Financial experts say the best approach is to make minimum payments on all of your cards and put the rest of your money toward repaying the card with the highest interest rate. This strategy alone could save you thousands of dollars in the long term.
Balance Transfer Card
Another popular approach to paying off credit card debt is using a balance transfer card. If you have a good credit score and don’t have a ton of credit cards in your name, this could be a good option. Many cards are geared toward balance transfers. They charge a low or 0 percent introductory rate for up to 21 months. This gives you time to pay down your card without having to worry about high interest rates increasing your balance each month. Note that most of these cards will charge a one-time balance transfer fee of 3 to 5 percent. Still, this fee is much lower than the average credit card interest rate of 16 percent. A balance transfer card could save you hundreds of dollars and help you pay down your debt quickly. Just make sure to do your research and compare cards first.
Consider Using Savings
If you have money in savings, you might consider putting some of it toward paying down your credit card debt. Experts say this can be a good strategy as long as you’re leaving yourself enough money for emergency savings. This is because credit cards incur high interest charges, while savings accounts have extremely low interest rates. If you have a $3,000 credit card debt and $10,000 in savings, your savings is barely growing while your debt is growing larger each month. Financial experts advise keeping three months' worth of expenses in your emergency savings account. If you have enough excess savings beyond that, consider taking a chunk off your debt. It will make paying off your card much easier in the long run.
- CreditCards.com: Rate survey: Average Card APR Remains at 16.15 Percent
- Federal Reserve: Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances
- Capital One: Credit Card Calculator
- CNN Money: Should I Use my Savings to Pay Off Credit Card Debt?
- Experian: How to Pay Off Credit Card Debt
- University of Illinois: Minimum Payments and Debt Paydown in Consumer Credit Cards
- Bank of America: 4 Strategies to Pay Off Credit Card Debt Fast
- NerdWallet: 2017 American Household Credit Card Debt Study
Chelsea Levinson earned her B.S. in Business from Fordham University and her J.D. from Cardozo. She has been writing professionally for more than ten years. She has created personal finance content for Bank of America, H&R Block, Huffington Post and more.