If you’re dealing with debt from your credit cards the process of paying off your debts may be overwhelming. Based on the Federal Reserve, the average rate of interest is 17.14 percent. If you pay this rate the balance on your credit card could increase, leading you to pay back more than what you initially charged at the beginning.
The goal of paying off your debt as fast as you can will save you money, and also give you more security. Three strategies can employ to pay off any credit card bills quickly.
1. Consolidate credit card debt using personal loans
Since credit cards carry extremely high rates of interest One way to reduce credit card debts is to reduce your credit card debts using the help of a personal loan. In this way, you can take out an advance for the amount of the balance on your credit cards and then use it to pay your credit card off. In the future, you’ll have one loan that has an interest rate that is lower personal loans typically have rates of interest between 6 to 15% — and a single monthly payment to keep in mind.
Since your loan will be able to have an interest rate that is lower than the one you’d get on your credit card, you’ll be able to save money and be debt-free in a shorter time.
Let’s take an example. For instance, suppose you owed $10,000 in credit card debt with 17.14 percent interest. If you were to make an obligation of $250 then it would take 4 years, 9 months and 3 days to repay the debt. In addition, you’d be able to repay the total amount of $14,750.
However, if the debt was consolidated and were eligible for an installment loan that has a three-year period at 7% interest, your payment per month will be just $239. Your debt will be paid off within four years, which is nine months earlier and you’d pay back only $11,494. Consolidating debt could allow you to save more than $3,200.
In addition, you can pay off your personal loan earlier without paying penalties. If you happen to receive an unexpected gift (like an unexpected bonus from work) and you want to put it into your loan to become debt-free quicker.
However, remember that while it can be an effective strategy but it’s not going to address the root of your problems. If you choose to take this route, ensure you know why you were in debt initially and create an elaborate budget and repayment schedule to ensure you’re on the right track.
2. Utilize the debt snowball method
In the debt snowball method it is possible to arrange your debt starting from the lowest balance to the highest. It is still possible to make the minimum amount of payments required on all your debts however, you apply any extra cash you have to the debt that has the lowest amount.
When you’ve paid off the balance with the lowest amount then you can roll over the minimum monthly payment as well as the extra amount you paid toward the next debt with the lowest amount. It is the idea that you’ll get rid of the smaller balances more quickly that will allow you to remain focused and motivated towards the goal.
Although this strategy may be effective, it’s not necessarily the most cost-effective method. Since you’re focusing on the debt that has the lowest balance, rather than the one that has the highest interest rate first and you’ll be paying more interest.
3. Utilize the debt avalanche technique
The debt avalanche is one of the ways to lower your debt and reduce your interest costs. When you use the debt avalanche method it is possible to identify your debt starting with the one with high interest rates, to those with the lowest interest rate and work on it in the order you want to.
Similar to the debt snowball, you continue to make the minimum payment on all your debts. However, with this method every extra dollar you accumulate each month goes to the debt that has the most interest, rather than the one that has the lowest amount. When you’ve paid off the debt that has the highest interest rate the payment will be rolled towards the debt with the next highest rate of interest. It’s best to pay off the most expensive credit card first. That helps you save money.
This method is cheaper than debt snowballs, however, it comes with two disadvantages:
- If you’re in debt with multiple creditors that have high-interest rates, you’ll only be able to make significant progress on one of them at a time. The other accounts will keep accruing interest and can slow you down and cost you a significant amount of money.
- This method could make it difficult to feel that you’re moving forward fast, which some may find dissuasive.
Managing your debt
Being in debt with credit cards can be stressful and costly. If you can develop the right repayment plan for yourself, you’ll be able to make savings and pay off debt sooner than you anticipated.
If you think the debt consolidation option is for you, you might consider applying for personal loans from Citizens Bank. Citizens Bank has lower interest costs, and a speedy decision-making process and can make your loan available within the span of two days.