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Credit card debt is easy to accumulate. Pay it, though? This is the hardest part — especially once your balances reach the $5,000$15,000 or even $30,000 point.
Fortunately, there are several credit card debt repayment strategies you can use to settle these balances. If you’re struggling with credit card debt of up to $30,000, here are four ways to pay off credit card debt and control your expenses.
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1. Focus on one debt at a time
A good place to start is to focus your energy on paying off one debt at a time while only making minimal payments on others. Two popular strategies for doing this are the snowball and debt avalanche methods. Here’s how each works:
- Debt Snowball Method — With the snowball debt repayment strategy, you first pay extra each month toward your smaller balance. Once you have eliminated this one, apply the amount you were paying to the next smaller debt, and so on. This method gives you several quick wins and can help you stay motivated when your balances start to disappear.
- Debt Avalanche Method — Also called the highest interest rate method, this strategy aims to first pay off your most expensive debt, the one with the highest interest rate. You pay all of your extra funds into your debt at the highest rate first, making only minimum payments on the others. When that higher interest balance is gone, you work on the next highest rate debt and repeat the process. This strategy generally lowers your long-term costs the most, although it does not produce results as quickly as the snowball method.
Both strategies can be effective, but the right one depends on your unique debt situation and personal preferences. If you have a lot of separate debts and need a little extra motivation, the snowball method might be a good idea. If you have debt with a much higher rate than the others, the avalanche method would probably be smart because it will save you the most in the long run.
2. Consolidate your debts
Another option is to consolidate your credit card debt. You do this by taking out a loan and using it to pay off your credit card balances and other debts. This move essentially consolidates all your different debts into one, leaving you with one monthly payment and one interest rate.
You can consolidate your debt with several types of loans, including debt consolidation loans (which are unsecured personal loans), home equity loans, home equity lines of credit (HELOCs), and cash refinances. .
The advantage of debt consolidation is that it simplifies repayment. You only have one monthly payment to worry about and budget for. Many times this can also lower your interest rate. (Keep in mind that your loan interest rate will largely depend on your credit score.)
On the other hand, some debt consolidation loans come with closing costs, which could reduce your savings. You may also need to put up an asset as collateral, such as your house or car. This puts your property at risk of seizure or foreclosure if you fail to make payments.
Credible, it’s easy to compare personal loan rates from various lenders, and it will not affect your credit score.
3. Use a credit card with balance transfer
It might seem strange to take out a new credit card to pay off the old ones, but the strategy can work well — and save you big — if done correctly.
With balance transfer cards, credit card companies typically offer 0% interest for a fixed period, often 18 to 21 months. This allows you to transfer your high interest balances to the new card and make payments only on the principal balance for that initial period.
When using a balance transfer card, try to pay off your balance in full before the introductory rate expires. If you still have a balance at that time, your balance will begin to accrue interest at the card’s normal rate, and your minimum payment amount could increase significantly.
Balance transfer cards also usually come with transfer fees. These fees vary from company to company, but are generally around 3-5% of each balance you transfer. And you’ll generally need good to excellent credit to qualify for an introductory 0% APR card.
4. Set a budget to avoid future overspending
If you’ve accumulated $30,000 in credit card debt, budgeting is essential, both to pay off that debt and to prevent it from accumulating again.
Start by striving to understand your overall financial situation. How much money do you receive and what are your monthly expenses? You can use a spreadsheet to map everything. Be sure to include things like your housing costs, utilities, minimum credit card and loan payments, groceries, and any other essential expenses.
You should also look at what money is going elsewhere, as this can help you focus on areas where you might be spending too much. Your bank and credit card statements can be useful for this purpose.
Once you know where your finances are, you can create a monthly budget to follow in the future. This will allow you to reduce your expenses and regularly allocate money to your debts or other financial goals. If you need advice on this task, the Consumer Financial Protection Bureau has a budget worksheet it can help.
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