Paying off credit card debt may seem like a daunting task, but it is possible. While there’s no quick-fix solution to getting out of debt, there are a few strategies and methods to do it quickly and efficiently. In this article, we’ll explore potential options for how to pay off credit card debt, including:
- The debt snowball method
- Credit card consolidation loans
- Balance transfer credit cards
- The debt avalanche method
We’ll also look at other strategies you could explore — even things as simple as trying to spend less or making extra monthly payments — to help you determine the best way to pay off credit card debt for your situation.
Related: Popular investment trends
What Is Credit Card Debt?
Credit card debt is an outstanding balance that you owe to your credit card issuer on an unsecured, revolving credit card loan (all important credit card terms to know).
Since credit card accounts are revolving loans that stay open indefinitely, it can be easy to keep adding to your balance each month. Plus, it’s possible to open multiple credit card accounts — sometimes with relatively high credit limits — which can make it possible to lose track of your spending and get in over your head. That situation can compound as interest continues to accrue on the unpaid balances each month.
Why It’s Important to Stay Out of Credit Card Debt
Debt is one of the things that affect your credit score, which is why it’s important to minimize or eliminate your credit card debt. Credit cards often have high interest rates, so once you get in debt, it can quickly spiral and become a large and overwhelming amount. The best way to prevent credit card debt from getting too large is to pay off your balance in full each month after you review your credit card statement. This way, you’ll avoid racking up interest charges on money you still owe.
Methods for Paying Off Your Credit Card Debt Fast
If you do find yourself in credit card debt, there are methods for paying it off. These methods generally focus on either paying off each debt individually or consolidating all of your outstanding balances into a single monthly payment. There are pros and cons to each method. Ultimately, the best way to pay off credit card debt depends on what works for you.
1. Debt Snowball Method
The debt snowball method focuses on paying down the account with the lowest balance first. While you’re making larger payments toward the account with the lowest balance, you continue to make the minimum payments on your other accounts. For the debt snowball method to work, you must put as much extra money as you can toward the lowest balance account until that balance reaches zero.
Then, put the money you were using to pay off that balance toward the account with the next-lowest balance. Continue until all debt is repaid. For example, if you have three credit cards with balances of $400, $1,000, and $9,000, you would pay off the card with the $400 balance first while continuing to make the minimum payments on the $1,000 and $9,000 balance cards. Once the $400 balance was paid off, you’d focus on the $1,00 balance. Then, the $9,000 balance.
The debt snowball method can be an effective strategy for people who like to see immediate progress and would lose motivation if they didn’t start to see results. Since the account with the lowest balance will probably get repaid rather quickly, it can feel like an immediate win. This can motivate you to continue to work toward paying off other debt. However, with the snowball method, you may end up paying more interest over time. If your larger debt accounts have high interest rates, you may pay more in interest with the snowball method than you would if you focused on paying off debts with the highest balance first.
2. Credit Card Consolidation Loan
Credit card consolidation is another method for repaying credit card debt. With a credit card consolidation loan, you combine multiple account balances into one loan with a single monthly payment. Credit card consolidation ideally results in a loan with a lower interest rate than the average rates of your previous loans.
If you qualify for a lower rate on a debt consolidation loan, you can save significant money over time on interest. Plus, it can be simpler to make one monthly payment, rather than having to remember to make multiple payments each month.
However, you have to qualify for a debt consolidation loan based on your credit history. If you qualify for a loan with a higher interest rate or a loan that is too small to cover your existing debt, then credit card consolidation may not be a good option for you.
3. Balance Transfer Credit Card
A balance transfer credit card allows you to transfer existing balances from other accounts. If you qualify for a card that offers a 0% introductory balance transfer annual percentage rate (APR), then you can save money on interest. If you can pay off your balance before the introductory period ends, you can avoid paying interest altogether.
Transferring your balances to one card also consolidates your debt, meaning you have fewer different monthly payments to make. However, if you make a late payment, your introductory financing offer can be revoked. Also, after your promotional period ends, any remaining balance will accrue interest at the card’s regular balance transfer APR, which can be quite high. Keep in mind that your credit generally will still need to be in decent shape in order to qualify for 0% APR offers; those with severely damaged credit may be limited to secured credit cards.
You’ll likely have to pay a balance transfer fee as well, which is typically 3% of the amount transferred. Finally, you cannot transfer a balance above the card’s credit limit. If the amount you transfer is nearly your entire balance, it can negatively affect your credit score. This is because your credit utilization rate will be high. Some lenders may also charge over-the-limit fees.
4. Debt Avalanche Method
The debt avalanche method focuses on paying the debts with the highest interest rate first. While you’re making larger payments toward the account with the highest interest rate, you continue to make the minimum payments on your other accounts. For the debt avalanche method, you put as much extra money as you can toward the highest interest rate account until that balance is zero. Then, put the money you were using to pay off those accounts toward the account with the next-lowest balance. Continue until all debt is repaid.
For example, if you have three cards with credit card interest rates of 26%, 19%, and 13%, respectively, you would pay off the card with the 26% APR first while continuing to make the minimum payments on the 19% and 13% APR cards, too. Once that was paid off, you would focus on the 19% APR card and then the 13% APR card.
The biggest advantage of the debt avalanche method is that you save money on interest. However, using the debt avalanche method means it can take a while to pay off your first loan. If your account with the highest interest rate has a large balance, you may not feel a sense of accomplishment for many months or years. This can be discouraging for some people who may lose motivation more easily.
Comparing Ways to Pay Off Credit Card Debt
Determining how to pay off credit card debt is a personal decision. Consider the following factors of each method to decide which seems like the right approach to paying off credit card debt for you.
Other Strategies to Pay Off Credit Card Debt
If you’re focused on how to pay off credit card debt fast, it’s wise to consider all your options. In addition to the previously mentioned methods for paying off credit card debt, here are a few other strategies to consider.
1. Minimize Spending
The easiest way to pay off debt is to put more money toward your debt. And the easiest way to do this is by finding ways to minimize spending. Although it’s not fun, it’s important to cut back when trying to pay off credit card debt fast.
2. Make Extra Monthly Payments
An important thing to realize when it comes to how to use credit cards is you don’t have to wait until your payment due date to make a payment. Rather, you can make more than one payment each month. Credit card interest is calculated based on your account’s average daily balance, and it’s compounded daily. So, every day that you wait to make a payment means more in interest charges.
Making extra payments throughout the month can also help you avoid overspending on other things and help prioritize paying off debt. However, always check that you have made the minimum monthly payment by the time of the due date to avoid late charges and penalty rates. Note that the minimum monthly payment must be paid after the statement is generated, or it won’t count toward that statement.
3. Seek Professional Help or a Credit Counseling Service
If you’ve tried other methods and nothing seems to be working, then you could try seeking professional help or a credit counseling service. Nonprofit credit counseling services can offer financial literacy education and help you evaluate your credit card debt and entire financial situation. Some will even negotiate with credit card companies for a lower interest rate on your debt, or help you explore options like credit card debt forgiveness.
Note that credit counseling is often a requirement before filing for bankruptcy, which should be considered a last resort.
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Dealing with debt isn’t fun, but it’s easier once you know how to pay off credit card debt. Strategies to consider can include the debt snowball and avalanche methods, as well as credit card consolidation and balance transfer credit cards. Really, the best way to pay off credit card debt will be the method that works for you.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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