The best, most cost-effective way to pay off credit cards is to pay your balances in full before the due dates. You’ll find your full balance on your monthly credit card statements, along with its due date.
If you can’t pay in full and have to carry a balance from one month to the next, you’ll pay an interest charge on the balance. If you continue to carry balances for months, you’ll pay more and more interest as your balance accrues.
When you look at your monthly card statement, you’ll see the charges and purchases made throughout the month, along with the total balance and the due date. But you’ll also see a “minimum due” amount. Paying this amount keeps your account open and avoids penalties, but it doesn’t do much for paying off your debt.
A minimum due payment only pays the interest charges due that month -- leaving your balance to carry over into the next payment cycle. None of your minimum payment actually pays off your current debt.
So let’s look at a few ways to pay off credit card debt -- and reduce the interest you’re paying every month.
Even if you can’t pay the full balance, try paying more than the minimum due. You’ll make progress on paying off your debt -- and pay less in interest charges over the weeks ahead.
Find a comfortable middle ground, between the minimum due and the balance total. Beyond the minimum, you can pay as much as you’d like, up to the full amount.
First, make sure your credit card bills are part of your monthly budget. Estimate your card charges and purchases for a month and make room on your budget as a fixed expense.
Then see what you can adjust. If you’re unable to pay your cards’ full balance every month, are there other expenses you can limit or eliminate? Re-allocate those funds for card payments -- at least until your card balances are cleared.
Remember: unlike other expenses, carrying a credit card balance costs you money -- in interest charges -- month after month.
4 smart ways to pay off credit card debts.
Following a plan, using a proven strategy, can keep you focused on paying off your card debt. The two most popular strategies are both effective -- the debt Snowball method and the debt Avalanche method.
With both methods, you’ll pay the minimum due on all your cards every month. With the Snowball strategy, you’ll pay as much as you can afford on the card with the lowest balance. Once it’s cleared, you’ll do the same with the card with the next-lowest balance. It’s the fastest way to clear one card after another and build snowball-like momentum.
With the Avalanche strategy, you’ll pay as much as you can afford on the card with the highest interest charges. That might not be the card with the highest interest rate -- because a card with lower rate but a higher balance could be charging the most interest month after month. You’ll have to compare statements every month, but you’ll pay less in interest than with the Snowball strategy.
With debt consolidation, you’ll secure a loan dedicated specifically to paying off debts. Use the loan’s lump sum to pay off your card balances, then instead of juggling payments and due dates, make a single payment on your new loan -- at a lower interest rate.
Debt consolidation loans are usually personal loans, and many are secured loans, requiring an application review and collateral.
Bright can pay off your cards faster and save you money on interest charges.
Once you download the Bright app, we’ll use our patented MoneyScience™ to study your finances, learn about your debt and make smart payments, always on time and optimized to save you money, getting you debt-free fast.
Bright also offers Bright Balance Transfers, a smart alternative with competitive rates and built-in automation.
Bright Balance Transfer offers a low-interest line of credit designed to pay off card debt fast while saving you from high interest charges. Once approved, Bright uses the funds from your Bright Balance Transfer to pay off your high-interest cards, moving those debts to our balance transfer program with its lower APR. Over the months ahead, Bright automates your new repayments, too, so you pay less in interest and it’s hassle-free. Bright Balance Transfers offers credit lines of up to $10,000 at APRs starting from 9.95%, depending on your eligibility.
If you don’t have it yet, download the Bright app from the App Store or GooglePlay. Connect your checking account and your cards, set a few goals and let Bright do the rest. With a personal Bright Plan, you can apply for Bright Credit Builder or Bright Balance Transfer or use MoneyScience™ to pay off your cards fast.
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With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.