The FASTEST Way To Pay Off Credit Card Debt

in 2023 the total credit card balances in the US reached an all-time high of over $1 trillion with the average American's credit card debt now being over $6,000 fueled by prices that have been increasing over time along with increased interest rates now make it much more expensive to carry that balance as well as it makes it harder to pay that balance down and for this reason I wanted to talk about some strategies and tips that people can start to do to start paying down that credit card debt so you can reach that goal of becoming debt-free when it comes to trying to get out a credit card debt one of the first steps that's simple to do is to have a clear understanding of your credit card debt often times people who are overwhelmed with credit card debt don't realize how much debt they have or how much the interest from their credit cards are costing them and in order to do this you first need to make a list of all that credit card debt which includes a list of all your credit card balances the due dates what the minimum payments are for each one and then last the APR s or interest rates for each one of those balances now once you have this information together you should now have a better understanding of the full scope of your debt and you can now start to look into some methods and different options and strategies that we'll be going through to work on paying off that debt getting into the first strategy to tackling your debt we have the snowball method the strategy for this method is to focus on paying off your credit card debt with the smallest balances first and slowly working your way up to getting that largest balance paid off so to get it started let's say you had three card balances one for $1,500 with a 177% APR or interest rate then $7,000 and 26% and then $3,000 and 22% you're first going to list your credit card balances out and order from the smallest to the largest balance then you want to make the minimum payments for all your credit card balances except for the smallest balance as the smallest balance is the one where you'll want to put as much money as you can every single month to towards paying it off and once that lowest debt is paid you'll take the money you use to pay it off and then start to pay down the next lowest balance and repeat the cycle now it's extremely important to be sure that you're making those minimum payments towards those other balances as you don't want to be paying late fees or Worse hurting your credit score and if you don't know when it comes to your credit score payment history is one of the most important factors since it makes up 35% of your total credit score so those ontime payments play a big role in determining your score all right so jumping back to the car balances you might have been wondering why I only focused on the balances and I didn't mention anything about the interest rates and that's because the snowball method ignores interest rates and while a higher interest rate would make that debt worse because it's more costly it also makes more sense mathematically to go after the balance with the higher rate but we'll talk more about that shortly the purpose of the snowball method is more of a behavioral and psychological strategy to keep you motivated and consistent towards paying off your debt because you're able to see the progress quicker by getting those small wins lowering your total amount of balances as well as building that momentum towards becoming debt free okay so for the next strategy to tackle your debt we have the Avalanche method and unlike the snowball method where you target the lowest balance with the Avalanche method the focus is on the interest rate coming back to the three card balances from before we want to take these balances and a PRS and organize them in order from the highest interest rate to the lowest and since the interest rate is the only thing that we care about the balance can be ignored similar to the previous method you want to be sure that you're paying the minimum payments for all your balances to avoid any additional fees and late payments as for the payment with the highest interest rate you're going to try and pay down as much as you can every single month and once it's paid off you move down to the next highest interest rate now since this approach is is focused on interest rates the benefit of the Avalanche method is that you're saving money on those interest payments over time if you're targeting a credit card balance that may have an interest rate of 24% first even if that balance is your largest then ignoring a card with a smaller rate of like 17 or 18% and paying that down later on by staying consistent throughout the process the Avalanche method could end up being your cheapest way to get out of debt but if that 24% interest rate balance is massive it could take a while or a few years to pay off then that can make it really tough as working to pay down for a long time the first balance out of your other credit card debts could be a demotivator since you aren't getting the faster wins to help you feel more accomplished ultimately when it comes to deciding whether to go with the snowball method or Avalanche method it'll come down to your particular situation and whichever method makes sense for you personally I believe if you're someone with credit card balances that aren't High because maybe there was an unexpected expense that popped up where you temporarily needed to get yourself back on your feet and you're back to normal financially then it could be possibly better to go with the Avalanche method as your payments could be more manageable since the balance is lower and your timeline for paying off your debt likely won't be as long but on the other hand if you have just had problems financially for some time have had some big setbacks or you're just learning more about personal finance then it could make more sense to go with the snowball method in reality it's unfortunate that we aren't taught about personal finance and Credit in school while in most cases we have to learn on our own with the majority of it being through our own mistakes but that's okay for this reason I think for most people the snowball method approach would be the best because of the psychological benefits from seeing that progress quicker But whichever road that you decide to take the most important part is that you're making progress towards paying off your credit card debt and becoming free of that debt so next let's get into some other options and tips to be aware of and to understand to help with handling credit card debt this one here I think is more of a short-term solution but I don't believe a lot of people are even aware of it and that's taking advantage of getting a credit card with a 0% introductory APR offer that also includes 0% balance transfers depending on how much debt you have doing this could potentially save you a few hundred to a couple thousand by simply moving over your debt to a credit card that has a 0% introductory APR and balance transfer will allow you to pay off your credit card debt without any interest this is a form of what you call debt consolidation and the way debt consolidation works is that you be taking the debt that you have which could be from multiple accounts with your different interest rates and different balances and then you're combining it or also called consolidating it into one single loan or credit card in this case and it would have its own single interest rate to keep it simp simple just imagine in the case where you have two cards with a balance of $3,500 each so that's $7,000 in total and they both have an interest rate of 25% that balance in a year would be costing you around $1,750 by moving that balance over to a 0% APR card so for as long as the term offer is for that card that balance will be interest free during that period so not only are you able to save a good chunk of change but that also allows you to really start to work towards knocking that balance down without worrying about fighting against those interest fees every single month all right so while this does sound great there are a few things you need to be aware of and one is that depending on the card these 0% APR and balance offers can range from 6 to 18 months depending on the card and once that period's over the interest rate will jump right back up to a higher rate also it's extremely important to know that with 0% APR cards is that if you manage to have a late payment some issuers will take away that 0% rate and charge you a penalty rate which can sometimes be as high as 30% so you really have to be on top of your payments as this could derail your whole debt payoff Journey also consider when doing a balance transfer you'll have to pay a balance transfer fee which in most cases will be between 2 to 5% of the amount that's transferred and lastly while this can create a great opportunity for you to be able to hammer down those payments towards your debt it can be more harmful for some people what you don't want to do during this 0% interest time period is slack off on paying your debt just because you feel like you gained some more time to push out your debt payments as this can push you down into a debt spiral this next option which isn't talked about much it can help you with getting control of your debt and that's reaching out to your credit card provider to lower your interest rate surprisingly enough by getting in touch with your credit card issuer and explaining your current situation they could could be willing to negotiate some type of payment terms with you or what's called a credit card hardship program and for this type of hardship program the card issuer could wave the fees as well as lower your interest rates over a specific time period typically shorter term like 3 to 12 months now these terms will vary depending on the issuer and your individual circumstances but there are many issuers that offer some type of program like Chase MX Capital One and many others which you can usually find information on their websites about this as well as calling them for more detail and since the hardship program is approached on a caseby Case basis some examples of situations that could qualify you include things like unemployment a cut to your income some type of serious illness or medical emergency you have natural disasters and a variety of other stuff so there are some things that you do need to consider when it comes to hardship and first is that there may be some requirements depending on the issuer with things like providing documentation for your proof of hardship meeting with a credit counselor setting up Auto withdrawals from your bank account and even signing an agreement as well as the issuer could have terms that freeze your credit card account lower your credit limit and even close your credit card account but if used properly this option can help you from missing future payments and most importantly preventing you from defaulting in your credit card so this next one here is something that should be done regardless of your situation but once you've determined all your debt one important step and Habit to get into is budgeting unfortunately most people have no clue how much money that they spend every month or even where that money is going without giving it a second thought while the source of the debt usually comes from continuously spending more money than you actually have in your account there are also many times where people fall into credit card debt because of unexpected emergency or medical expenses but regardless of how it started by by budgeting you can really get insight into how much money is coming in and how much money you're spending and what exactly you're spending that money on so first you'd want to list out how much money you're making each month then for expenses you want to do the same by putting together a list of your monthly expenses which are things like mortgage and rent utilities like electricity and water your phone bill subscriptions that you may have groceries eating out traveling entertainment and all those type of things from there you can group those expenses into categories so you can identify which expenses are really necessary and those that aren't you know like the Bare Bones Necessities like your rent mortgage utilities insurances and things that are Central for you to live then you have the other side which are things like going out to events taking trips going to the movies or buying some new clothes or any other type of shopping and this is what you'd consider as your wants so things that you want and you do do not need to get by this separation is important because this will allow you to see how much of your money is going towards the things that are essential in your life and then you can really work to cut down that spending in the unnecessary areas for the time being while you focus towards paying off that credit card debt and if you'd be interested in seeing a video going into more detail on budgeting let me know in the comments as this could be something I can make in the near future now when it comes to creating your budget you do have some tools available to use to help you track your spending while you can do this with a pen and paper if that works for you you can create a spreadsheet or there's plenty of spreadsheet templates that you can find online as well as there are a variety of budgeting apps that can be free or paid to use like y andab you need a budget every dollar quick and simplify Monarch money and others while depending on the app some Full Features you may need to pay for but I think if you're really serious about tracking your expenses this is something that could help to better align you with your budgeting and help you knock out that debt even though there's quite a few ways to go about approaching your debt in the end when it comes to paying off your credit card debt there aren't really any shortcuts or ways around it except for actually paying it down while I do like to talk about the benefits and perks that come with a variety of different credit cards I do know there's a darker side to them that many people are struggling to deal with and if you're interested in having a better understanding of how credit works as well as some key factors to avoid when it comes to credit cards I recommend you to check out these videos on the screen if you got some value from this video please be sure to hit the Thumbs Up And subscribe for more videos like this thanks for watching and I'll see you in the next one

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