So, if you happen to stumble upon (or crash violently into) some debt, know that you’re not (at all) alone. And you’re not stuck.
We’ve done some research into the best methods for paying down credit card debt so you don’t have to, and found a few key methods to consider. So let’s get started.
Psst…If you haven’t already tried them, head to your Me.Inc page on the app to explore Nav.it’s Debt Repayment and APR Calculators!
Find a Payment Strategy
Pay More Than Your Minimum Your credit card issuer likely gives you a monthly minimum payment (around 2-3 percent of your overall balance). However, you need to know that these banks benefit from the interest they charge you each period. The longer it takes you to pay, the more money goes into your bank’s pocket, and out of yours. Bottom line: PAY MORE THAN THE MINIMUM.
Debt Snowball This is a term used to describe a strategy that has you prioritize your loans by amount, focusing on the smallest first. Pay off the smallest, then roll that payment into the amount you’re contributing toward your next smallest loan. Pay the same amount each month, contribute to a different repayment as you pay debt down overtime.
Debt Avalanche Opposite the Snowball Method, the avalanche method has you pay off the card with the HIGHEST interest first. It tends to be faster and cheaper than the Snowball Method as the highest payment also likely means it’s the card with the highest interest. So if you get rid of it first, you’ll be paying down smaller amounts faster.
Automate your payments This is an easy way to ensure your debts are being paid so you avoid racking up additional costs in late fees. Think of your debt repayments as a monthly utility bill. Your above minimum rate is NOT a choice. Pay it forward now; reap the benefits later.
Did you know you can consolidate your debt payments into one account? This can be helpful if you’re paying off debt from more than one account. (Been there, hate that.)
Find a 0 percent balance transfer credit card Ok, so I know it sounds crazy to open up another credit card account when you’re working to pay off your credit card debt…bear with me. If you find a card with a long 0 percent introductory period (15-18 months) and you transfer all of your outstanding credit card debt to that one account, you’ll have one payment each month WITHOUT INTEREST. (Miracles do happen.)
Personal Loans Consider a FIXED RATE debt consolidation loan to pay off your debt. Why consider another thing to pay off? Well, personal loans tend to offer lower interest rates than credit cards. Check out our APR (Annual Percentage Rate) Calculator in Me.inc.
If negotiation isn’t a part of your day job, you might not love this idea. But it’s an important one to consider when managing your credit card debt. Remember: creditors expect customers to negotiate terms. If it’s expected, why not try it out?
Here’s where you should start:
Request a smaller minimum payment.
Request a lower APR
Explain the situation. If you’re a longtime customer who doesn’t skip out on payments, they will likely hear you out. Don’t just tell them what happened; show them the strategy you have to pay off the debt.
If you can’t meet your payments each month, and you’re struggling to find a solution, there are some debt-relief options you may need to consider. Here are those options with a small grain of salt…
Debt management plan These let you seek support from a nonprofit credit counseling agency. Counselors negotiate new terms with your creditors to consolidate your debt. Be aware: You’ll have to then pay the agency a fixed rate each month. Depending on the negotiation, your accounts could close and you might not be able to open a new one for some time.
Bankruptcy Chapter 7 bankruptcyclears your unsecured debt (like credit cards), but will seriously impact your credit report for 10 years. Meaning, during this time, you’ll find it hard to get credit.
Instead, Chapter 13 bankruptcy helps you restructure your debts into a payment plan of three to five years and is preferable if you have assets you wish to retain. This can impact your credit score for some months after filing and will stay on your report for seven to 10 years.
Debt settlement This is when a creditor agrees to accept less than the amount you owe. While it sounds pretty good, it has serious consequences. First of all, it can be costly. It can also take a very long time to settle (like two to four years). It will also stay on your credit report for seven years.
We’re excited to offer free tools for helping you manage your debt like a budget tracker, account aggregation, and debt repayment calculator inside thenav.it money app .