When it comes to getting things done, there are typically two ways to do things: the smart way, and the not smart way. And that’s certainly true for paying off credit card debt. The smartest way to pay off credit card debt is to minimize the amount of interest that you pay each month, which will save you money and help you pay it off even faster. The not smart way would be to only make your minimum payments each month. Making only your minimum payment each month will keep you on a debt treadmill– you’ll make payment after payment but never be able to pay off the balance. So, here’s how to do it the smart way.
Use a personal loan to lower your interest rate.
One of the smartest ways to pay off credit card debt is to find ways to lower your interest rate which will save you money and allow you to pay it off faster. One way to lower your interest rate is to use a personal loan to pay off the balance(s) of your credit cards. Lenders typically offer significantly lower interest rates than what you pay on credit cards. Another thing that is great about this option is if you have several credit card balances, you can consolidate them into one simple payment with the personal loan. You can compare multiple interest rates from multiple lenders here.
Pay off the highest interest debt first.
Another smart way to pay off credit card debt is to start by paying off the highest interest credit card first. Eliminating your highest interest debt first will save you the most money while paying off debt. As you pay off your highest interest balances, you’ll use the money you were paying and apply it to your next highest interest balance. This method of debt repayment is commonly referred to as the debt avalanche method.
Make payments every 2 weeks.
Another trick that is one of the smartest ways to pay off credit card debt is to make a payment every two weeks. Rather than making one payment that includes your extra payment, you’ll divide the amount you want to pay each month into two and pay it every 2 weeks. When you do this, you actually spend less money in interest because you’ll be making more payments per year. For example, if you plan to pay $1,000 a month in extra payments, make a half-payment every two weeks of $500 instead. You will end up paying $13,000 in a year, instead of $12,000 monthly, or $1,000 times 12 monthly payments.
Set a budget.
It’s hard to make progress paying off credit card debt without knowing how much money you can afford to pay in extra payments. You’ll figure this out by creating a budget. Start by tracking your income and expenses, and then look for ways to reduce your expenses and increase your income. More on how to create a budget to pay off credit card debt here.
Track your progress.
Another very smart thing you can do to pay off credit card debt is to track your progress. Tracking your progress helps you stay motivated. And research shows that the more you monitor your progress when you’re trying to reach a goal, the greater the likelihood you’ll succeed.
You can track your progress manually using a piece of paper or an spread sheet. You can also track it in the Paidback app by linking your debt accounts so you can see them all in one easy to see place.
On top of that, your chances for success are even higher if you report your progress publicly, which lends to another thing you should be doing to pay off credit card debt the smart way…
Another smart way to pay it off is to stay accountable to someone else. This can be a spouse or partner, a friend, family member, or a host of people in our community on Paidback who are actively paying off debt. When you are accountable to someone else, it helps you stay focused and motivated so you can pay it off even faster. People who monitor their progress by tracking debt are more likely to stay on track, but for people who publicly report it, they’ll pay it off even faster. (See here).
Getting started paying off credit card debt can feel extremely overwhelming at first. Using these tips, you can rest assured knowing you’re paying it off in the smartest of ways.