There’s no doubt that having credit card debt can be stressful, and having high-interest credit card debt certainly doesn’t help matters.
The higher the interest rate, the more it can feel like you’re not making any progress when trying to pay off your debt, but many people have paid off high-interest credit card debt, and you can, too.
Explore options that will help you get rid of high-interest credit card debt for good.
Get to Know Your Debt Consolidation Options
One sound strategy for paying off your high-interest credit cards is to use consolidation options that allow you to take advantage of a lower interest rate so you can pay off debts faster.
An explanation of these options is below.
Debt Consolidation Loan
A debt consolidation loan is designed for consumers to pay off multiple debts at once, allowing them to pay the total amount in one place, which is more convenient and can often carry a lower interest rate than they’re currently paying.
When you qualify for a debt consolidation loan, the lender will give you the funds directly so you can use them to pay off each of the accounts you have — such as high-interest credit cards, medical bills, or loans — allowing you to focus on tackling just one bill.
As a result, this can make a debt consolidation loan an effective way to get rid of your high-interest credit card debt. You can use a credit card debt calculator to see how long it will take you to pay off your debt if you use a debt consolidation loan.
Also, you can often get a personal loan with an interest rate that is much lower than the APRs on high-interest credit cards, so you can save money and pay off the debt faster. In fact, in some cases, you can cut the interest in half, allowing you to make higher monthly payments.
Compare rates, terms, and fees of some of the most popular debt consolidation loans.
Get a Credit Card with 0% Interest
You may be able to get relief from high-interest credit card debt by finding a credit card that allows you to consolidate your accounts with a 0% APR.
Benefits of Using a Zero-Interest Card
Companies often run promotions that give consumers an introductory period at this rate, which could be between 12 and 18 months, so you have a significant amount of time to work on the debt without interest rates adding to it.
This is especially helpful if you’re able to pay the entire amount during the introductory period. If you can’t, and the new card has a much lower regular interest rate, you ultimately still save a great deal of money even if there’s a balance after the 0% APR promotion ends.
Drawbacks of Using a Zero-Interest Card
Despite these benefits, there are a few things you should know about this approach.
One important thing to remember is that you will be charged a balance transfer fee, which is a percentage of the total debt.
Also, if you find a 0% APR introductory offer where you already have an account, chances are you won’t be able to take advantage of the promotion since credit card companies don’t tend to allow consumers to transfer debt from one card to another.
Prioritize Payoff
If you’re unable to explore debt consolidation options or don’t feel comfortable with this approach, you may want to prioritize paying off the debt. Here are a few ways to do it.
Adopt the Snowball Method
The snowball method is when you pay the minimum monthly amount on all of your credit cards except the one that has the lowest balance. This can help you really feel like you’re making progress when that card is paid off, and then when you’re done, use the money you allocated for that card to pay off the next one with the smallest balance.
A similar strategy is the avalanche method, where you pay extra on the card with the highest rate. This method can be effective because it allows you to chip away at the balance of a high interest rate credit card, so in the long term, you end up saving money over time.
Use Cash for Your Purchases
Changing your credit card usage is a big part of handling your debts, so use cash as much as possible to get your high-interest credit cards paid off. It can be far too easy to just pay for everything with one of your credit cards, so carrying cash can help you make your purchases while not increasing your balances.
Pay More Than the Minimum Amount
Since the minimum monthly payment for a credit card is only a small fraction of the balance — about one to three percent — paying only this amount will make it difficult to clear the debt quickly. Adding extra to each monthly payment can be helpful in clearing the debt faster, so look at your monthly budget to see if there’s a way to do it.
Make Your Payments on Time
As you’re paying off your balances, the last thing you want to do is add to that amount by being charged late fees.
This will not only help you stay on track with your payoff but will also ensure that your credit score doesn’t go down when late payments are reported to the credit bureaus.
To make it easier, establish automatic payments that come directly out of your bank account on the due date.
Lower Expenses
To meet your credit card payoff goals, this may be a good time to tighten your belt in any way you can. Perhaps you can get a cheaper cell phone plan or cut back on entertainment costs. Saving a little here and there can really add up, so take a look at your monthly expenses to figure out areas you may be able to cut so you can use that money toward paying your debt.
Get Debt Help
People struggling to pay off their credit card debt may feel like there’s no way for them to get out of it, but luckily, there are ways to get extra help from experts who specialize in debt management and debt relief.
Debt Relief
Nonprofit credit counseling agencies can negotiate with credit card companies to reduce your high interest rates, monthly payments, and the entire balance of an account.
When consumers work with these agencies, they have their debt consolidated and pay a fixed monthly amount to the organizations directly. In exchange for this service, you may be required to close all of your credit cards and pay the organization a startup fee, as well as a monthly service fee that could be about $20 to $30.
Debt Settlement
Another strategy you can explore is to obtain a debt settlement agreement.
When you do this, you work with a debt settlement company that negotiates a lower balance with the idea of helping you clear your debt within about 36 months.
However, credit card companies will usually only approve such an arrangement if they believe it’s the only way they can get their money. This means, in order to even begin the process, you have to be significantly behind on your payments, which lowers your credit score.
In addition, even if you’re able to get a debt settlement agreement, there are significant risks that come along with it. I
n addition to having your credit score lowered, you will most likely still be responsible for paying interest and penalties on your balance, and you even may be taxed on the amount that was taken off of your debt.
Bankruptcy as a Last Resort
If you find that you absolutely cannot handle the credit card debt you have, Chapter 7 bankruptcy, which allows you to get rid of unsecured debt, may be a last resort solution.
This is something you need to think long and hard about because it will be on your credit report for several years. Before you consider taking this step, consult a professional who can help you make the right decision for your situation.
Work Directly With Your Creditors
If you want to work directly with your credit card company, it may be a good option rather than having an organization work on your behalf. Here are some ways you can do it.
Negotiate a Lower or No-Interest Rate
Since high interest contributes to high balances, renegotiating a lower interest rate, or even better, no interest rate, will help you tremendously. This can be a successful strategy if you’ve been a long-time customer of a company and have a good payment history.
You can speak to them directly and explain the circumstances that caused you to need extra help, and given your previous relationship, the company may be open to making a deal.
Even if you’re not able to get a lower rate permanently, the company may agree to give you some temporary relief.
However, keep in mind that this is only applicable with a fixed interest rate. If your credit card has a variable APR, there may not be much the credit card company can do because these rates are based on state law. Also, as part of the deal, the company may close your account.
Negotiate a Payoff of Less That the Amount You Owe
In some cases, if you communicate directly with your credit card company, you may be able to negotiate a reduction of your balance with a lump sum payment.
This is typically something companies will consider when customers have fallen behind on their payments in order to ensure they get at least some of the balance paid.
Even if you ask for this type of assistance, keep in mind there is no guarantee you’ll get it.
While in some cases, credit card companies are open to these kinds of agreements, they may decide not to work with you. And even if they will, there are some things you should know: First, you will be required to pay the full amount right away. Also, this will negatively affect your credit score and come with a tax obligation.
Credit Card Payoff Do’s and Don’ts
Paying off your high-interest credit card debt is an overall positive thing to help you take the weight off your shoulders and meet your financial goals, but be sure to approach this process in the right way.
The following are some do’s and don’ts to think about as you work toward credit card payoffs.
Do Understand Your Debt
Paying off your credit card debt is a huge milestone, but your goal should also be to never get yourself into that position again.
In order to do this, you have to understand your debt and understand if there are any habits you have or problems that came up to contribute to the situation.
Maybe you had an emergency you couldn’t pay for, which would be an indicator that it’s a good idea to save more.
Maybe you relied too heavily on your credit cards when you could use cash. Whatever the case is, look at your spending and figure out how you can avoid this problem in the future.
Don’t Open New Credit Cards
As you’re paying off your high-interest credit card debt, you may be tempted by offers for new cards. Unless it’s a card with a 0% APR that will help you consolidate your debts, resist the urge to open up a new card because that will only be another potential problem you’ll have to deal with.
Do Have an Emergency Fund
It’s always important to expect the unexpected, so having money saved for a rainy day can go a long way toward helping you avoid getting further into debt.
Make sure that you are consistently saving money in an emergency fund, so if something does happen unexpectedly, you have the money to cover it and don’t have to worry about putting it on your high-interest credit card, thus increasing your debt.
Don’t Close Accounts After Paying Them Off
Once you’ve climbed up a mountain of debt, you probably want to never look back at it again — which may mean closing your account for good.
Although that does feel liberating, it can actually work against you because it can negatively impact your credit score.
Closing an account means that you don’t have as much available credit, so depending on your total debts, the credit reporting bureaus may actually lower your credit score if you have high balances and a lower available credit amount.
Do Use Credit Cards Strategically
After paying down your credit card debt, be sure to use your cards strategically.
If you travel a lot and have a card that offers rewards for airline tickets, be sure to use that card the most.
Take advantage of all the rewards you can, from cash back to gift cards to freebies on purchases to really put the cards you have to the best use.
Don’t Stop Using Your Card Entirely
It’s a good idea to cut down on your credit card use, however, you don’t want to stop using your cards altogether.
After a certain amount of time, your account may actually get closed for being inactive, which can work against you on your credit score.
Do Be Realistic
Goal setting for paying off debt is vital, but you want to make sure that you’re realistic about it. You may want to pay a certain amount extra on your monthly credit card bills, but if this is going to make it difficult to handle other expenses, you need to face that. While you may want to pay your debts off as fast as possible, setting unrealistic goals will only make you frustrated.
Don’t Take Out Cash Advances
It’s easy to use your credit card for quick cash withdrawals, but since you’ll have to pay it back with interest, it’s best to avoid taking out cash advances whenever possible.
Instead, get into the habit of carrying cash with you so you have it when you need it.
Do Track Your Progress
Paying off credit card debt can be a long and stressful process, so track your progress every step of the way to see how far you’ve come and stay motivated. This not only can make you feel better, but it can help you plan your next financial moves and determine if you should change your strategies to get to your goal.
Don’t Only Make Minimum Payments
If you’re able to make payments that are higher than the minimum, be sure to do so as often as you can. Even an extra $5 or $10 here and there can make a difference toward putting a dent in your debt.
No matter what strategy you choose to address your high-interest credit cards, you can get relief from this debt and free up your money for other financial goals. These tips can help you climb a mountain of debt faster than you normally would, giving you peace of mind as well as more money in your pocket.
