Between purchasing groceries, clothing, travel, vehicle maintenance, and more, understanding how to get rid of credit card debt fast is an important ability. Especially since more people use credit cardstoday than they use cash or checks. According to statistics released by the Federal Reserve Bank, roughly 167 million individuals living in the United States have a minimum of one credit card.
Cost of Credit Card Debt
Since credit cards are convenient, it is essential to use them wisely. Many people overextend their spending and end up struggling to make monthly payments on time. Not only does this put them in bad standing with the card issuer, it also has an adverse impact on their credit score, making it more difficult to buy a car, a home, or secure other credit.
The outstanding credit card debt is bad enough, but then adding interest, you owe much more. Although some people secure low-interest credit cards due to good credit, most Americans pay between 10 percent and 22 percent interest, but the average sits right around 15.59 percent. At those rates, especially when paying the minimum amount due, its nearly impossible to get out of debt fast.
3 Tips on How to Get Rid of Credit Card Debt
The costs of debt is a good start when trying to understand how to get rid of credit card debt, but it isn’t a physical action. Use these three steps below to help get out of debt fast.
Tip #1: Pay More Than the Minimum Payment
To get rid of your credit card debt fast this year, start by paying more than the minimum due each month. Experts recommend paying at least twice the amount. In other words, if your minimum credit card payment is $25 a month, pay $50. Here are two benefits of paying more than required.
Credit Utilization Ratio – Owing an amount on your card over 30 percent of your available credit will impact your credit score, and not in a good way. More than likely, this will result in you paying higher interest on future loans, including those for an automobile or home, and your credit score will drop. In fact, this could make it difficult for you to rent a place to live or get a job. However, if you pay extra each month, your credit utilization ratio declines, which may slowly help your credit improve.
Staying Creditworthy – In the eyes of the credit card issuer, when you pay additional money toward the balance each month, your creditworthiness improves. The more you pay off, the less risk you become to the credit card company or bank. To the issuer, this shows that you care about your credit and are taking the appropriate steps to keep your account in good standing.
Tip #2: Save Money With a Balance Transfer Credit Card
There is a right and wrong time to transfer an outstanding credit card balance to another card. If you can find a credit card from a reputable issuer that has a 0 percent interest rate for an introductory period, and your credit card balance is getting out of hand, then transferring is a good idea. The goal is to choose a balance transfer card with a long enough introductory period that you can get the balance paid down significantly or in full fast.
Tip #3: Don’t Cancel Your Credit Card After Paying It Off
Often, people make the mistake of paying off credit card debt and then canceling the credit card. In theory, this sounds logical, but in reality, it may negatively impact your credit score. The closing of accounts shows up in a credit report, so it may generate concerns when a creditor is looking at your report. Therefore, make your payments on time and get the balance paid off as fast as possible, but do not cancel the card.
If there is still credit available, even though you do not use the card, it helps lower your overall utilization ratio, which may help your credit score if the circumstances are right. If you close the card and have other cards with balances, this could leave you with a higher credit utilization ratio. Also, if you have only one credit card and make your payments on time, canceling would have lenders questioning your experience in handling credit.