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Credit Cards

How to Pay Off Credit Card Debt Early

Updated May 09, 2023   |   22-min read

Did you know that credit card debt can be harmful to your health? While it’s difficult to imagine anyone creating harm for themselves when using their credit cards, this should give you pause if that next purchase adds to a seriously overweight credit card balance. In that respect, knowing how to pay off credit card debt is no different than going on a life extending diet.

Today, the growth in debt is linked to the growing gap between the increase in the cost-of-living and income growth. In 2016, the growth in medical and housing costs far outpaces income growth, making it difficult for many families to keep up without relying on credit cards. With that being said, accumulating debt opens the discussion of paying down that debt.

The Importance of Paying Off Your Credit Card Debt Early

For many people that don’t know how to pay off credit card debt, the use of credit card debt has been a short-term solution to a temporary problem that could have long-term consequences. But, because it is an expensive form of debt, it eventually becomes a problem. With too much credit card debt, many households can only afford to make the minimum payment on their bill, which almost guarantees the problem will be around for many years.

The Minimum Payment is Not Your Friend

Most people understand that you should make more than the minimum payment on your credit card bill unless you truly have a credit card debt wish. But other people don’t know how to pay off credit card debt, so they don’t realize how damaging the issue can be. The minimum payment is the absolute smallest amount you are allowed to pay off on your credit card balance each month to avoid any late fees or negative marks on your credit. However, depending on how your credit card issuer calculates it, the minimum payment will barely cover the current interest charges, with very little applied to your balance.

The minimum payment is calculated in one of two ways: The percentage method or the percentage + interest + fees method. The percentage method is a flat percentage of your total balance. The typical percentage ranges between 1% and 3%. So, if your card balance is $1,000 and the percentage charged for a minimum payment is 2%, your minimum payment would be $20.

With the second method, the credit card issuer combines the flat percentage fee (between 1% and 3%) with any outstanding charges and fees. So, for the same card balance of $1,000, if you had any late fees from the previous month they would be added along with interest charges. This method could have the effect of paying down your balance a little faster, but it will still be a long road.

With either method, the minimum payment could be a flat dollar amount if the calculated minimum payment falls below that amount. To know exactly how your minimum payment is calculated, you need to read the terms and conditions of your credit card agreement.

To put it terms of real numbers, consider a credit card balance of $5,000 with an annual percentage rate (APR) of 15%. If your minimum payment is calculated based on a flat percentage of 1%, your minimum payment would be $112.50. At that rate, it would take 266 months, more than 22 years to pay off, and you will have paid nearly $5,800 of interest along the way.

That should be an incentive for anyone to, at the very least, pay more than the minimum payment each month. But there are equally compelling reasons for going much further to try to pay off your credit card debt completely in as short a period of time as possible.

Credit Card Debt, the Dream Killer

Carrying a high amount of credit card debt for any length of time can be a dream killer, especially if you don’t have an income that exceeds your debt. If it hasn’t already, it will begin to hurt your credit score, especially if your credit utilization ratio is much over 50%. Your chances of qualifying for any type of loan diminish, which could keep a new house or a new car out of your reach. And your credit card payments, which could increase more if interest rates rise, will prevent you from saving for critical goals, such as a college education for your children or your retirement.

The Best Investment You Can Make

The good news is that this is a fixable problem. Even better, once you start on a path of paying down your credit card debt, the process can start to snowball, picking up speed along the way. That’s because each dollar you pay off towards your debt reduces the amount of interest you will pay off over the long term.

It is kind of like the compounding of interest in reverse. With compounding interest, your money earns interest and then the interest earns interest, compounding the growth of your money over time. In reverse, the interest you no longer have to  pay off on a declining balance frees up more money to pay off principal. Over time, as your principal balance declines, so do the interest charges.

The effect of paying down your principal along with your interest is the same as earning a return on your money, but it can be a much better return than if you invested in the stock market. If you invested $200 a month in the stock market, you could expect to earn around 8% per year, which has been its average over time. The same $200 applied to paying down your credit card balance would reduce your interest charges at a rate of 15%, or whatever the APR is.

That is nearly double the return. The difference is, after a period of time investing in the stock market, you will end up with an accumulation of capital. At the end of a period of time paying down your credit card debt, you will end up with no debt. That is another big incentive for never going into credit card debt again.

As the process matures, you will begin to see your cash flow increase. If you focus on paying off your smaller balances first, you will free up cash flow more quickly. But that excess cash flow should be added to your planned monthly payment on all of your credit card debt. So, if your total monthly payment for all of your credit cards was $350, and you suddenly have an extra $75 from paying off one of the cards, your new planned payment for credit card debt should be $425.

By maintaining your planned monthly payment, and increasing it whenever you can, you can easily accelerate the elimination of your credit card debt to a much shorter period of time. But, it will take planning and a lot of discipline to stay on course. If you can envision that extra cash flow becoming available for things like saving for a car, a down payment on a house or for retirement savings, it becomes the motivation for staying on course.

Using Balance Transfers to Pay Off Debt Early – Make Sure You Have a Plan

If you still have a decent credit score, you may qualify for a 0% introductory rate balance transfer card, but this option comes with a big caveat. First, unless the introductory period is for at least 12 months, you will likely find yourself simply kicking the can down the road. If, for example, the introductory period is just six months, and there is little likelihood of your paying off the transferred balance, it could end up costing you more. Not only might the post-introductory APR be higher than your current rate, many balance transfer cards will retroactively charge interest on the amount that you already paid. For people with less than very good or excellent credit, balance transfers offers can be nothing more than a trap. You may be offered a 12 or 18 month 0% rate, but you may be issued one with only six months at 8%.

Whether transferring debt to a 0% credit card is a good idea or a recipe for a bigger problem down the road depends on your specific situation. More importantly, it depends on your ability to follow through with a plan to pay off that debt. Otherwise, you could compound your problems.

It can make sense, considering that your only expense during the introductory period is the transfer fee, which can range from 3% to 5%. That’s a low cost of money when compared with the double digit interest rate you are paying on your current cards. If you are serious about getting out of debt, you should only consider the 0% introductory offer if you have a serious plan and the discipline to carry it out.

Your Balance Transfer Debt-Payoff Plan

Go as long out as you can: Any debt pay off plan needs an adequate amount of time to succeed. You should only consider offers with at least a 12-month introductory period. Anything less may be too difficult to budget for, especially if you have been having trouble meeting your current payments. Plus, the longer the introductory period, the lower your actual cost because the transfer fee can be amortized over a longer period of time.

Some cards are offering introductory periods of 15 to 18 months, which will give you more room to utilize the 0% interest rate. But, under no circumstances should you keep applying if you get denied for a longer term card. When the banks see too many credit inquiries at one time, you will be considered a higher risk.

Budget like you mean it: Before applying for a card, it is imperative that you establish a strict budget that reprioritizes your expenditures towards credit card debt payments. In other words, you should be willing to sacrifice a few luxuries to ensure that you will be able to meet your plan requirements. If your plan requires that you make a $500 payment each month, then that should be your first priority item and the rest should be budgeted around that. Your budget should include a cash flow projection which shows how your payments will be maintained throughout the year.

If you don’t want to see a repeat of this credit card debt situation next year, you should also budget for setting aside $100 or more each month in an emergency fund that you can use for un-budgeted expenses or for holiday shopping.

Don’t use the card for any other purpose: Most introductory rate cards only offer a 0% rate on the balance transfer, not on purchases or cash advances. Using your balance transfer card for any purpose beyond transferring high cost credit card debt to low cost debt, will blow up your plan. Put the card on ice (literally put it in the freezer), and don’t use any credit cards unless you have budgeted for paying the balance in full each month.

Do not reduce your monthly payment: When you receive your monthly bill for your balance transfer card you will be pleasantly surprised to see how low your minimum payment requirement is. It could be half as much or more than what you had been paying. That’s because there are no current interest charges. So, your whole monthly payment will go towards reducing your balance. To make this plan work, you need to continue with your planned monthly payment. In fact, this is your opportunity to eliminate the balance if you can find some more money in your budget for the next 12 to 18 months.

The key to a positive balance transfer experience is to make it a part of your budget process and cash flow management. The goal should be to lower costs and increase cash flow while paying down debt. It is essential that you pay off more than the minimum due with an aim towards paying off the transferred balance before the end of the introductory period. How much could this save you and how much faster will you repay your debt? Check out our Debt Payoff Calculator to find out!

If you are unable to do so, your minimum payment will jump dramatically and you may be required to pay accumulated interest charges. If you are able to pay down the balance, you will then be in a position to transfer another high interest balance. This can go on as long as you maintain a good credit standing and you make more than the minimum payment on your transferred balance.

Using a Personal Loan to Payoff Credit Card Debt Early

If you have access to lower rate debt, such as a personal loan, it might make sense to borrow lower cost debt to pay off higher cost debt. But it is critical that you stick with your debt pay off plan and target date. Although replacing credit card debt with a personal loan may make sense in some circumstances, it should always be done with careful consideration of the potential drawbacks. Here are a few things to think about when deciding whether to use a personal loan to pay down your credit card debt.

When a Personal Loan is a Good Idea​

Lower Your Interest Rate

If you are able to replace 18% to 29% debt with 4% to 12% debt, it would make sense to do so. As a general rule of thumb, if you can lower your overall interest rate by 2 percentage points, it would be worth considering. The issue is whether you can qualify for less expensive debt. If you have been able to maintain a good credit standing, you might be able to qualify for a personal loan with a bank or credit union, with a loan rate of 4% to 10%. If you have less than great credit, you could try applying with an online lender.

Consolidate Credit Card Debt

For some people, having to manage multiple credit cards can be a problem in and of itself. It is easier to manage just one payment per month. It can simplify your budgeting and make it easier to commit to a long-term plan. The plan will blow up, however, if after you consolidate your balances into a personal loan, you continue to accumulate balances on your credit cards.

Repay Debt Faster & Earlier

Most personal loans are issued with a fixed interest rate and a fixed term of three to five years. That provides you with a set target date, which is the motivation most people need to focus on a goal.

When a Personal Loan Is a Bad Idea​

You Still Can’t Control Your Spending

Replacing one debt with another is not a good idea if you still haven’t addressed the underlying behavior which got you into the problem. At best it would be kicking the can down the road a bit. At worst, it can balloon into a bigger problem. Your debt is only a symptom of a larger problem which is uncontrolled spending or trying to live beyond your means.

You Don’t Have the Discipline to Stick to a Plan

Replacing your credit card debt with a personal loan could lower your monthly payments, but if you don’t have the discipline or fortitude to stick to a plan, it could be for naught. If you were able to lower your monthly credit card debt payment from $600 to $450, the question becomes, “what will you do with the extra $150?” If you have the discipline to apply it to your loan to pay off your debt even faster, then it makes sense. If not, then you really haven’t improved your situation.

Your Debt is Out of Control

If your credit cards are maxed-out, you could have trouble qualifying for a personal loan with a reasonable interest rate. You may be better off seeking debt counseling which can also offer the opportunity to consolidate your credit card debt payment under better credit terms.

Should You or Shouldn’t You?

In considering the use of a personal loan to replace credit card debt, it comes down two things – the math and your behavior. If you can lower your costs and shorten the amount of time to pay off your debt, the math works. However, if you struggle with changing the behavior that got you into debt, a personal loan may turn out to be just a temporary fix.

Negotiating With Your Credit Card Company

Credit card companies, whether a credit union or a bank, are known to negotiate on certain things. The better your standing with the company, the more they might be willing to negotiate on such things as a credit line increase, a change of due dates, waiving a late charge or lowering a minimum payment.

Lowering Your Interest Rate

On issues that could help you pay off your credit card debt faster, the only one that could possibly be negotiated is your interest rate. To even stand a chance at getting an interest rate reduction, you need to have an impeccable payment history and a very good to excellent credit score. Short of that, it may not be worth the effort. However, if you are able to do so, you could cut your interest costs, which will enable you to apply more money to paying off the balance.

Say you have a credit card you obtained several years ago when you had less than great credit. Since then, your credit has improved and you’ve made on-time payments. Very rarely will a credit card company offer to lower your interest rate. But, if you call and present your case as to why you’ve earned a lower rate, they might consider it. It might help to mention that you’ve been offered a lower rate credit card from a competitor. The credit card company is under no obligation to comply with your request. However, they also don’t like losing a good, profitable customer to a competitor.

On the other hand, if you want to negotiate a settlement or workout plan of some sort, it means you are in bad financial straits and can no longer make the payments. That is a different kind of negotiation altogether. In many cases, the credit card company won’t entertain such arrangements until you are already behind on your payments. If you need to go this route, you should first know what exactly these arrangements can do for you and how to position yourself for a successful negotiation.

Lump Sum Settlement

If you’re hoping to negotiate for a lump sum settlement where you can pay off your credit card debt for less than you owe, you won’t have any luck until you’ve been behind on your payments for a while. In fact, you may not be able to get a credit card company to work with you until it is clear you have no other option than to apply for bankruptcy. The credit card company would prefer to settle for less than to lose it all through a bankruptcy discharge.

To successfully negotiate a lump sum settlement, you will need to have access to a lump sum of money. Say you are able to negotiate a $5,000 credit card balance down to $2,500. The creditor will want the total amount to settle. In most cases, they will allow you pay it over three installments. Be sure to get the settlement agreement in writing and confirm that the settlement amount satisfies your bill.

Be aware that a settlement for less than what you owed can result in a tax on the amount forgiven. If $5,000 is owed, and $2,500 is forgiven, you will owe taxes on the difference.

Workout Arrangement

If you can negotiate a workout arrangement, you could have your interest rate reduced or eliminated. During this period, the bank may also stop assessing late fees or over-limit charges. You can also see if the bank will forgive past fees to reduce your balance.

While a workout arrangement could lower your payments, it won’t do anything to pay off your credit card debt faster unless you are able to come up with more money each month to apply toward your balance.

Getting a Second Job or Side Income to Pay Off Debt

All of the credit card debt reduction solutions presented thus far center on reducing your costs. For many people, another solution to consider in conjunction with lowering costs might be to increase their income, which can be applied to debt reduction. That might mean taking on a second job or a side gig with low pay initially, but the effect on your debt reduction will be significant.

If you’re paying 18%, 23% or 29% on credit card debt, each dollar you contribute to paying off the balance reduces your exposure to those high rates. In effect, the reduction in your exposure to high interest rates works out to be an increase in the marginal wage you’re earning. So, even an $8 an hour wage can have an outsized impact on your financial situation.

Fortunately, second job or side gig opportunities to explore are more plentiful than ever in today’s economy. Here’s a few of the more popular or unique ones to consider.

Virtual Assistant

The digital world is creating an entirely new ecosystem of jobs that can be performed from anywhere there is an Internet connection. One of the more popular is being a virtual assistant. Virtual assistants perform any number of office functions, such as bookkeeping, payroll, and administrative duties, all from the comfort of their home and often on a flexible schedule.

Any office experience is helpful along with working knowledge of computers and the use of Microsoft Word, Excel, and PowerPoint. Aside from searching the jobs section on Craigslist, you can get your foot in the door through freelance sites such as Upwork where you can bid on hundreds of jobs. You should expect to start at the lower end of the pay range – between $8 to $12 an hour – but, with experience, you can earn up to $40 per hour.

Uber/Lyft Driver

The sharing economy has opened many new avenues for people to earn money on their own. Perhaps the biggest opportunity to earn decent side money is as an Uber or Lyft driver. Using your own car, you can drive on the meter anytime you want, earning as much as $1,500 a week depending on your availability. As a side gig, it would be fairly easy to pick up a few hundred dollars a week to put towards credit card debt.

Sports Referee or Umpire

If you like sports, you can spend your nights and weekends working as a referee for various sports leagues. Each sport has its own association from which you receive training and certification. At the sub-varsity level in high school you can earn $30 to $40 a game. At the varsity level you can earn $80 to $200 a game. During a typical weekend tournament you might umpire five to ten games.

You’re Only Limited by Your Creativity and Desire

The opportunities for earning money on the side are almost limitless. Anyone trying to understand how to pay off credit card debt can find something they enjoy on the side to help them pay off some of their debt. 

At the End of the Day, It’s Up to You

This guide offers several actionable strategies for paying off your credit card debt early. However, nothing happens until you put a plan together, set a target and commit to hitting that target. This could include any one or a combination of these strategies. To ensure your success, it would be important to change the patterns of behavior that created your credit card debt problem. As part of your plan, you should commit to the following:

Live Under Your Means

Your credit card debt reduction plan will be nearly impossible to achieve without additional cash flow. Going forward, you need to commit to a strict plan with an emphasis on reducing unnecessary spending. To save yourself thousands of dollars in interest and improve your financial security, you can afford to make a few sacrifices for a few years.

Put Your Credit Cards on Ice

Somebody somewhere came up with the idea of putting your credit cards in a baggy of water and placing it in the back of the freezer. The concept being that if the temptation ever arose to use them, by the time they thawed, the urge would pass. At the very least, you need to distance yourself from your cards. It is not recommended that you cancel any credit accounts, except perhaps your retail accounts. If you feel you have the discipline, you can carry one around for emergencies.