How to Pay Off Credit Card Debt Faster

Dec 05, 2016 | Be First to Comment!

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Credit card debt is something many Americans battle with. In fact, many American households carry multiple thousands of dollars in credit card debt. That's no small number for a family that has to also worry about paying for a mortgage, college, and retirement savings.

If you're feeling the pressure of credit card debt, there are ways to expedite your payoff process. While there's no way to eliminate credit card debt overnight, there are things you can do now to shave your payoff time by months or even years - and potentially save you thousands of dollars in interest in the process.

Lower Your Interest Rate

Ever wonder why it can seem so much harder to pay off a credit card than other types of debt? If so, the answer is simple: high interest rates.

If you're on a tight budget and can't pay more than the minimum, lowering your interest rate enables more of your money to go to the principal balance. If your budget is more flexible and you can pay more than the minimum, then also lowering your interest rate will help you boost your payoff plan.

So, how can you lower your interest rate?

1. Ask for a Lower Rate

The first thing you can do is call your credit card company and ask them for a lower interest rate. The best way to achieve this is to highlight what you've been doing well.

For example, if you've never missed a payment, that's a factor that helps you. If you've had the credit card for a long time, that's also factor that helps you.

It may seem sometimes like a bank or credit card company is the enemy, but that doesn't have to be the case. Show them how you've been a great customer for them and they'll do what they can to make you happy.

When you call your bank or lender, remember to be friendly and persistent. Don't tell them what they "have to" do for you. Instead, kindly highlight your proven loyalty and positive customer behavior. Don't tell them a sob story and don't try to appeal to their emotional side. Just be reasonable, nice, and concise.

And if you talk to someone and get an immediate "no," ask to speak to a supervisor. Moving it up the chain may just get you the interest rate decrease you're looking for. Without a lower rate, see how little of your payment goes to the principal balance.

Percentage of Monthly Credit Card Payments Toward Interest

Scenario A1 A2 A3 B1 B2 B3 C1 C2 C3
Balance $5,000 $5,000 $5,000 $10,000 $10,000 $10,000 $5,000 $5,000 $5,000
APR 16.99% 16.99% 16.99% 16.99% 16.99% 16.99% 8.99% 8.99% 8.99%
Monthly payment $200 $500 $800 $200 $500 $800 $200 $500 $800
Time to pay off 2 years 8 months 11 months 7 months 7 years 4 months 2 years 1 year 2 months 2 years 4 months 11 months 7 months
Total principal paid $5,000 $5,000 $5,000 $10,000 $10,000 $10,000 $5,000 $5,000 $5,000
Total interest paid $1,215 $430 $274 $7,508 $1,841 $1,084 $557 $217 $141
Portion of monthly payment paid toward prinicipal 80% 92% 95% 57% 84% 90% 90% 96% 97%
Portion of monthly payment paid toward interest 20% 8% 5% 43% 16% 10% 10% 4% 3%
Total paid $6,215 $5,430 $5,274 $17,508 $11,841 $11,084 $5,557 $5,217 $5,141
Monthly payment to pay off in 1/2 the time $351 $875 $1,295 $307 $988 $1,511 $378 $855 $1,273

2. Get a Balance Transfer Credit Card

If lowering your interest rate doesn't work - or if your interest rate isn't lowered by much - consider a balance transfer credit card.

A balance transfer credit card is a credit card you obtain with the purpose of paying off debt. These cards typically come with an introductory interest rate of 0% for at least six months (usually longer).

After the introductory period is up, the interest rate will increase to a much higher amount. Because of the increase, there are two things to consider when you obtain a balance transfer credit card:

  • The first thing you can do is create a plan to pay the card off by the time the introductory period ends. In other words, divide the whole balance by the amount of months you have to pay it off. Make that number your "minimum" payment. If that's too high for your budget, get as close to it as you can.
  • The second thing you can do is obtain a new balance transfer card when your introductory period ends. To prepare for this, do everything you can in the meantime to protect your credit score (make all of your payments on time, never miss a payment). Then, continue to get as close as you can to the first suggestion. While balance transfer credit cards are useful, they can lead to an endless cycle if you continue to only pay their minimum payment and continue to obtain new balance transfer cards.

Since the interest rate on a balance transfer is so low, these cards can be a fantastic way to boost your debt payoff efforts. But they don't come for free. Most balance transfer credit cards come with a balance transfer fee. It typically costs 3% of the transferred balance. With a card that waives this fee, you'll save much more money on your journey to eliminate debt.

Here is a list of balance transfer credit cards, including one that doesn't charge a balance transfer fee:

As you evaluate these and other offers, remember that there's more to a credit card than the APR and the fees. Look for the right balance for you. If crunching the numbers shows that you'll need more than 1.5 years to pay it off, a card that offers a longer introductory period may be worth a fee. But if you think you can get it done in 15 months or less, you may be able to forego the fee and get a card with a shorter introductory period.

One more thing about balance transfer credit cards: NEVER use them to make a purchase. The purchase APR is not the same as the balance transfer APR. And if you make a purchase, figuring out how to pay off the credit card in time could get a whole lot more confusing. Simply put, this card should be used for paying down debt only.

Create a Better Payoff Plan

Once you've done what you can to lower your interest rate - or even if you were unable to do so - the next step is to create a better payoff plan. Paying off debt without a plan is difficult to do. But creating a better payoff plan can make all the difference in the world. Two popular plans are the debt snowball and debt avalanche methods.

Before we talk about how these methods are different, let's talk about how they're the same. These plans assume that you currently have more than one credit card so, if they don't, this doesn't apply to you unless you also want to include other debt like student loans, car loans, and mortgages. Here's what you do:

  • List your debt in order from the first credit card you want to pay off to the last one you want to pay off
  • Calculate the minimum due for each - the total is your total monthly debt amount
  • Review your budget to see if you can pay more than that amount.
    • If you can, apply the extra money only to the first card on your list
    • If you can't, continue with the next step

  • Once you have this plan in place, follow it each month. Then, when the first credit card is paid off, roll the amount you were paying on that to the next credit card. Continue that process until all of your credit cards are paid off.

In short, what these methods do is create a situation in which you're always paying the same monthly amount on your debt until all the debt is paid off. Paying a credit card off doesn't mean you'll have a little less to pay each month, it means you'll have a little extra to put towards the rest of the debt each month. This process can be slow to build, but can make a massive difference in your overall debt payoff time.

Now you just have to decide which cards to target first. That's where these two different methods come in.

The Debt Snowball Method

The debt snowball method is a method in which you target your lowest balance credit card first.

In other words, if you have one credit card with a $500 balance and another with $2,500, you'd target the $500 card first.

The main draw of this method is that it's motivational. As you see one credit card after another get paid off quickly, you can ride that momentum through to the end.

The Debt Avalanche Method

The debt avalanche method is a method in which you target your highest interest rate credit card first.

In other words, if you have a credit card that charges 15% APR and another that charges 25%, you'd target the 25% card first, regardless of the balance of either.

The idea behind this method is that it's often the mathematically fastest way to pay off debt. Since higher interest rates eat up much more of your minimum payments, eliminating them first frees up more of your money to go to the principal balance.

Some don't find this to be the most motivational method since it might take longer to pay off that first target (if it comes at a higher balance). But if you're looking for the fastest way, this is probably it.

Apply All Extra Money Towards Debt Payoff

Tax refund? Bonus at work? Unexpected monetary gift? If you're focused on paying off debt, apply it to that credit card that's first on your payoff list.

It's not exactly fun to apply any and all extra money towards debt payoff, but if you want to stop being a slave to those interest rates, it's worth it.

If you really need a cushion to have some fun, split it 90/10. For example, use 90% of your tax refund for credit card debt and the remaining 10% for savings or something fun. While this slows down progress a bit, it's a way to boost your motivation if you're feeling worn down by the payoff process.

Most of all, remember this: momentum is a powerful thing. When you receive an extra sum of money, seeing it take a chunk out of your debt balance can feel amazing. That alone is often enough of a boost to keep you going.

The same applies if your income increases, either from a promotion, new job, or work on the side. Rather than increasing your monthly spend, you could live on the same budget and apply the increased income to debt alone. After all, you've already grown used to living on your previous income, why not stay that way until you're debt free and get there faster? Once you pay off the debt, it will feel like you had a raise anyway as all that money you were spending on debt can go wherever you want.

Debt Doesn't Have to Be Forever

Credit card debt can feel like forever when you're deep in it, but it doesn't have to be that way. If you can do things like lower your interest rate, create a better payoff plan, and apply extra money towards payoff, you're likely to see faster progress than you ever imagined.

The main thing to do here is to never avoid your credit card debt. Never pay minimum only without a plan. And do your very best not to accrue any additional debt as you work to pay off your current debt.

If these steps aren't working for you, it might be time to revisit your budget and figure out what's not adding up. And remember, you don't have to be able to pay hundreds of dollars extra each month to pay debt off faster. You just have to make a plan and stick to it. You will get through this - as long as you don't give up.

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