Believe it or not, debt can suck the life out of you if you do not handle it wisely. The majority of the American population is already suffering from a huge debt burden. If we look closely, we will see that the total revolving credit card debt stands at $1.04 trillion. As per CreditDonkey.com, the average individual credit card debt stands at $5,331 in 2019. Here are some more facts:
- 83% of U.S. adults have at least one credit card.
- On average, U.S. consumers own three credit cards.
- The average interest Americans pay on their cards stands at 16.46%.
- Americans between the ages of 35 to 65 have the most credit card debt. Generation X and baby boomers have accumulated $7,750 and $7,550 per person in credit card debt, according to data from Experian (EXPGY)
Debts, especially credit card debts, can make your financial life miserable. So, if you want to save your finances from the jaws of credit card debts, you should engage enough money and sufficient time to pay off credit cards as soon as possible this year.
7 Tips to paying off credit card debt faster in 2019
1. Determine credit card balances and interest rates
You have multiple ways to get rid of your credit card debts. You can select any option that suits you. But you must remember that you should make the minimum payment on all of your credit cards to avoid penalties and fees.
So, don’t skip payments and make the minimum payment on your credit cards every month.
You may tackle your credit card debts in a smaller amount, such as by counting each credit card separately. By doing this you may handle your credit card repayment process more efficiently. Have you heard of debt snowball method? Through this method, you can consolidate credit cards by focusing the smallest balance first. Apparently, you are using divide and conquer strategic approach to paying off credit card debt.
2. Pay off credit card debt with the highest APR
The average interest rate on a credit card is nearly 17%. So, if you do not pay off your credit card balances, the interest can add up quickly with your existing balances. For this reason, you may pay off your credit card debts all by yourself, through the debt avalanche method. This method will focus on the interest rates of each card. Start with the credit card debt with the highest interest rate. Pay it off while making a minimum payment on other cards.
Your aim should be reducing the principal and not adding up more interest. Once you have paid off the highest interest credit card, shift onto the credit card with the next highest interest rate.
3. Make payments on your credit cards bi-weekly
This is a very easy and useful tip to reduce credit card balances and save on interest payments.
You may stop paying your credit card bills each month, and start paying them in every two weeks or bi-weekly. It has few benefits, such as it will reduce your principal credit balance and save more on interest. Apart from that, if you would pay twice in a month, you actually would be making 26 half payments instead of 13 full payments. That is more than what you would pay by making one monthly payment. The extra payments you will make may help you to lower your average principal credit card balance.
There are no prepayment penalties on a credit card, so you may pay off credit cards through a lump sum payment anytime you like. If you earn extra from a side hustle or receive a tax refund, make sure you invest that money to reduce the principal balance of your credit card debt.
4. Opt for credit card balance transfer through a 0% APR credit card
Using a balance transfer method, you may transfer your high-interest credit card balances into a 0% APR credit card. The 0% interest offer might be valid for 12 months or longer. You should make the minimum payment every month. Many of the credit cards also offer 0% APR on new purchases.
With a 0% APR credit card, you may have more time for paying off credit card debt without paying high-interest charges. You must target paying off your credit card balance in full before the grace period ends.
5. Consolidate your credit card debt with a loan
You may consolidate your credit card debt with a personal loan, typically known as a credit card consolidation loan. Using this loan, you may consolidate your existing credit card debts immediately and pay off the existing loan within 2 to 7 years. You may take out personal loans from $1,000 to $100,000 with a low-interest rate if you have a good credit score and a stable income.
The interest rate on your credit card can be higher than the interest rates on your other loans like mortgage or auto loan. The majority of credit card interest rates are variable. Credit cards with variable interest rate can be increased at any point of time. But, if you take out a personal loan, it will have a fixed interest rate. So, you also have to pay a fixed predictable amount each month.
Data source – thebalance.com
Let’s have an example – Suppose you have $10,000 of credit card debt at a 17% interest rate and $200 monthly payment. If you have a good credit score, you may opt for a personal loan at 8% interest, consolidate your credit card debt, and save a good amount from your payment.
6. Start a side hustle
Do you have a hobby that you are really good at? It can be anything like art, music, literature, or anything. Is there any way you can use your hobby to earn more?
You can also work part-time in a restaurant or in a food-joint during weekends. If you’re a pro photographer, you may shoot snaps in private parties, cover sports, or may become a wildlife freelance photographer.
These side hustles can be a great way to boost your income apart from your regular job. Once you get some extra cash, pay off your debt faster, without thinking twice.
7. Adjust your tax withholdings
One of the easiest ways you can increase your income every month is through the IRS.
Due to the tax reform, many employees’ withholding decreased in early 2018. As a result, they have more money in their paychecks. Since that time, the IRS pushed employees to perform a Paycheck Checkup using the Withholding Calculator on IRS.gov. A Paycheck Checkup will be useful to see if taxpayers are having their employer withhold the right amount of tax, from their paychecks. Taxpayers who have already changed their 2018 withholding may also need to recheck their withholding. A sudden mid-year withholding change in 2018 may have a different full-year outcome in 2019.
I have adjusted my withholdings in order to minimize the size of our return. Then I used that surplus income to pay off my debt.
Paying off the debt is cool if you have the proper mindset, patience, courage, and confidence. If you have these, you’ll become the ultimate winner.