How to Pay Off Credit Card Debt in 2023

We know how incredibly difficult it is to pay off credit card debts.

With the ongoing COVID-19 pandemia and rising prices, Americans are struggling to pay off their debts.

It’s true that using a debit or checking account instead of a traditional bank savings account may be better for your finances because you won’t pay any fees or interest charges. However, if you’re paying too much in interest, then switching to a debit/checking account isn’t going to help you at all.

You’re using your credit cards, not the other direction!

Pay off your credit card debt if you’re carrying an average APR of 16% or greater. It’ll pay for itself.

There are five strategies for getting rid of credit card debt:

Before you begin your journey towards becoming debt free, try not to use your card at all for awhile. We only suggest doing so if:

• You’re not currently carrying any credit card debt.
• If you had $3,000-$6,000 in savings, this would be how much money you’d have to live off for three to six month if you had no income coming into your bank account.
• You can completely wipe out your credit cards’ balances each month by paying them off in full.

For whatever method you choose, making sure to pay off your credit card debt — and learn to manage your finances responsibly — should be a top priority.

To start, determine how much credit cards you owe by using a tool like CreditSesame, which is a free online credit tracking system.

Choose your weapons! We’ll discuss five different methods, from loan consolidation to payment plans to settlements, for paying off your debts.

The Debt Avalanche Method

Instead of thinking about your entire debt in one go, break it down into smaller pieces. You’ll feel more motivated if you see small wins rather than just one big win.

The two most popular ways to pay off debts are the “debt avalanche” and the “debt snowball” technique.

With the “debtor avalanche” technique, you’ll pay off your debts by making the minimum payments on them, but you’ll put any extra money towards paying off the account with the highest interest rate first.

Eventually, one of your credit cards will get paid off, and then you’ll focus on paying off the next highest-interest-rate card. And so on.

The Debt Snowball Method

With the “debit” method, you’ll pay off your debts by paying the least amount of money first. Any extra money will be put towards the account with the smallest remaining amount owed.

If you start out with the smallest balance, you get to experience small victories sooner than if you had started with a larger balance. However, there’s a downside to starting out with a smaller balance: You might pay more interest overall.

Deciding which method is best for you depends on whether you want fast results or if you’re willing to spend less on interest. We recommend checking out a debt calculation tool yourself so you can figure out which option works best for you.

The Balance Transfer

If you have good or excellent financial standing (a FICO score of at least 670), then a balance-transfer offer from a bank may be worth considering. A balance-transfer offer lets you move your existing account balance to another one where there is no annual fee or minimum payment requirement.

These days, most of these 0%-interest-for-12-to-18-month periods come with an annual fee. However, if you’re looking for a 0%-interest period without any fees, you can usually get one with a good FICO score.

You need to take out a loan

You could consider borrowing some money from a bank to pay off your debt.

If you borrow money at a lower rate than your current card rates, you may be able to save yourself hundreds or even tens of thousand of dollars in fees.

If you’re not able to save any money for paying down your credit cards, then you could use this method.

We’ll take a closer look at two different ways to consolidate your debts: a personal loan or a mortgage refinance.

Personal Loan

If you’re looking to get a personal loan, you don’t need to worry about having a bad credit score because most lenders won’t check your credit before approving you for one. You can simply use an online marketplace to shop around for a personal loan.

If you have good (or even bad) financials, then a debt consolidation might be a good option for you. Whereas a card offers revolving (continuous) access to funds, a debt consolidation will have a fixed payment structure.

Balance transfer credit cards are similar to consolidated loans, letting you move all of your outstanding debt onto one card. Still, personal loan offers represent the more cost-effective option compared to balance transfer credit cards.

Here is a good place to look for personal finance advice. You can use Fiona, a search engine that helps you find the best personal finance offers from the top online lenders in just a few minutes.

Home Equity Loan

You may use one of these options if you own a house with an existing mortgage: A) a traditional fixed rate mortgage; B) a variable rate mortgage; C)

• A home equity line of credit (HELOC) allows you to borrow against the value of your house. You pay back the principal plus interest for a certain length of time.
• You can use up to a certain amount of your home’s value when using an HELOC. If you need more than that, you can get it from another source.
• With a cash-out refi, you refinance your existing loan with a new loan that’s slightly more expensive than your original loan, and save the extra cash.

If you want to get the best mortgage rate, then you need to choose an option that offers the lowest monthly payments. However, the downside is that you run the risk of losing your house if you aren’t able to repay the loan.

Debt Settlement

Navigating the world of debt collection and credit cards can be daunting and even unlawful at times. A frequent misunderstanding is that if credit card bills are left unpaid, people can lose their homes or be sent to prison. Unlike other types of debt, creditors won’t be able to take your house or prison you for unpaid credit card debt as it’s an unsecured form of debt.

Don’t let your debts get the best of you. Find out if there are any ways you can help yourself.

Debt Management Program

A personal finance specialist will help you manage your debts by setting up an educational and repayment plan for you. It works best if you’re struggling with multiple types of unsecured debts, like student loans, auto loans, and medical bills.

A debt consolidation loan allows you to pay off multiple debts at once, which helps you get out from under them faster than paying each one individually would. However, if you fail to keep up with your repayments, you could end up losing everything you’ve worked so hard to achieve.

Debt management programs often don’t lower your debts, but they may lower your monthly payments by up to 50% or extend your repayment period so that you’re able to pay off your debt more easily.

Credit Card Debt Settlement

If you’re in a situation where you can’t afford the amount of credit card debts you already have, then debt settlement might be an option for you. However, we consider it a last resort.

Debt Settlement lowers your total debt by reducing the principal owed, but it will significantly hurt your overall financial situation.

It’s not quite as easy as just consolidating debts. You need to convince each creditor that if they don’t accept your settlement offer, they’re unlikely to receive anything from you at all. So, naturally, during that time you aren’t going to be paying them back. And since interest and late charges continue to accumulate, you might end up owing even more than before.

Most consumers seek the help of a credit card relief company when they’re having trouble paying off their debts.

A debt management plan (DMP) works similarly to a debt consolidation loan; however, instead of paying off multiple loans at once, a DMP pays off one single loan for several months.

Seek out legitimate debt relief assistance if you’re having trouble paying off your debts. Some firms may be legit, but they could just be taking your cash and doing nothing to actually get you out of debt.

You may not pay off the debts the debt settlement service has already settled for you, but you’ll still be late with any new bills that haven’t been paid by the time the debt settlement service ends its services.

There’s no guarantee that the company will succeed in its negotiations, so even if they don’t negotiate successfully, you’re still responsible for the entire loan amount, plus any additional interest that accrues.

If the company is not successful, you won’t be responsible for any of the settlement amounts. Instead, you’ll have to wait until April before paying any tax on the amounts forgiven.

You’ll be charged an additional fee by the settlement service provider for their services.

Bankruptcy

Bankruptcy is an option if nothing else works. There are two main types: Chapter 7 and Chapter 13 (for individuals).

Chapter 7 bankruptcy allows individuals to completely discharge their personal debts (except for certain types of taxes) within 4–6 months by selling their non-exempt property. A trustee then collects and disburses all the proceeds from the sale of these properties to repay creditors.

People who earn a lot of money or have a lot of money usually file for bankruptcy under Chapter 7, which wipes out their entire estate and eliminates any future earnings. It’s an extremely difficult process that doesn’t always result in resolving your debt. It can easily be undone by increasing your earnings, but it ruins your credit.

Bankruptcies both give you a way to deal with your debts and stop having them follow you around for years. If you’re out of options though, filing for Chapter 7 may be better than filing for Chapter 13.

Here’s how to pay off credit card debt fast.

To get out of debt fast, there are several ways to pay off your debts quickly:

Up Your Monthly Payments

Don’t pay your balance once a month, rather, make two payments each month. Most credit card companies use the average daily balance method to figure out interest charges. Don’t just pay $600 a month, but break it down and make one payment of $300 mid-month and the other at the end of the month – this will reduce your average day by day balance so you won’t be required to pay much interest. There are even credit card users who suggest paying off debt frequently; setting up a weekly notification in your calendar is all that’s needed.

To get a lower rate, try to negotiate for one

With your credit card companies, ask them for lower interest rate options. You might be able to get a better deal by asking for one of their competitors’ products.

For instance, decreasing a $10k loan by 4 interest points can help you save hundreds of dollars in the long run. Utilize those funds to pay off your debts faster.

Get the Debt Reduced

Sometimes you can get a bank to forgive some of your debt — or maybe even all of it. After all banks want to keep customers happy, so they may be willing to negotiate with you if you’re having problems paying off your debts. Explain the problem to your creditor. Offer to make partial payments until the entire amount is paid off.

Most of us don’t know whether we’re going to be successful at something right away.

What Impact Will Paying Off Credit Cards Have on Your Credit Score?

You might be wondering, “How much will my FICO® Score go up if I pay down my debt?” It seems that having too many open accounts can negatively affect your FICO® Scores.

Your credit score increases when you pay off debts on schedule and don’t exceed your limits.

You shouldn’t use up all of your available debt just because you have some. Checking your utilization rate lets you know if you’re wise with your borrowing.

Ideally, keep your debt ratio (the total amount of debt divided by your monthly income) below 30%. That means if you have a $9,000 loan, you shouldn’t carry a debt of more than $2,700 per month.

Approximately 1/3 of your FICO® Scores are based on credit utilization, while other influential factors include payment history, credit history length, credit mix, and newer credit lines.

Credit card companies encourage us to overspend through their easy payment options. The low APR offers, sign-up bonuses and cashback incentives are designed to get us using cards more often and reducing our awareness of the value of the items we purchase. In order to achieve debt freedom, you need to modify how you use credit cards.