2020 has been a year of challenges for all of us. But the upheaval might also bring with it great opportunity.
Before the COVID-19 pandemic, a report by the Federal Reserve Bank found that 55% of Americans with credit cards had debt. But for those who are lucky enough to still have jobs, the crisis has also turned America into a nation of savers: Most people are spending far less of their time and money on discretionary purchases such as vacations, entertainment and dining out.
With fewer expenses and uncertain times ahead for the economy, you may have a unique opportunity to pay off your credit card debt. Here are smart strategies to help you out.
7 Ways to Start Paying off Credit Card Debt Today
1. Make your payments early and often. The amount of credit card interest you’re charged is based your account’s average daily balance. That means that every day you wait to make a payment, you’ll have to pay more interest.
It’s important to understand that you don’t have to wait until your payment due date to pay down some of your balance, and you aren’t limited to making just one payment each month. For example, you could make a payment twice a month — possibly just after you receive your paychecks — or even once a week. By quickly using your money to pay down your credit card balance, you won’t have the chance to change your mind later and use it to splurge on something else. Just make sure that at least one payment covers the minimum during each statement period. You must do this, even if you’ve made multiple payments during the previous statement period.
2. Get a balance transfer card. Despite the current economic troubles, there are still several credit cards offered by major issuers that include 0% APR financing for balance transfers. Taking advantage of one of these offers will allow you to avoid interest charges while you pay down your debt. This means that 100% of your payments will go towards your principal, allowing you to pay off the balance much sooner than you could have otherwise.
Current offers include the Citi Double Cash, which features 18 months of 0% APR on balance transfers, and the PenFed Gold Visa® Credit Card, which has 12 months of interest free financing on balance transfers and a low standard interest rate for purchases. For more information, read: The Best 0% APR Credit Cards Available Right Now.
3. Focus on debt with the highest interest rates first. This is the traditional way of paying off debt while reducing your interest costs.
4. Or consider the “debt snowball” approach. Instead of focusing on your balances with the highest interest rates, this strategy popularized by personal finance expert Dave Ramsey involves paying off your smallest balances first, so that you achieve some “quick wins.” The idea is that this helps you build momentum towards paying off larger balances. This can make the most sense when your outstanding balances have relatively similar interest rates.
5. Look into personal loans. If you’re unable to qualify for a balance transfer credit card, then you could apply for a personal loan to consolidate your debt. Try asking your bank or credit union, or looking into a social lending program.
6. Give your budget a makeover. Go through all of your monthly expenses, and try to reduce or eliminate the least necessary spending. This could mean cancelling your cable TV, switching to a lower cost mobile phone plan, or just reducing the number of nights you order takeout.
7. Get help. If all of these ideas aren’t enough to help you reduce your credit card debt, then it might be time to seek assistance. You can start by consulting a credit counselor from the Department of Justice’s approved list, which may recommend a debt management plan to consolidate and pay off your debt. If that isn’t sufficient, it may be time to talk to a bankruptcy attorney.
Bottom Line: How to Pay Down Credit Card Debt
President Kennedy once noted the similarity between the Chinese characters meaning “crisis” and “opportunity.” By taking this unique opportunity to devote your discretionary budget to paying off your credit card debt, you can use this moment to better prepare your family’s finances for whatever comes next.