How to get out of credit card debt fast?

If you have credit card debt, paying it off fast will be a great financial decision and the first step in taking control of your finances. Being debt-free gives you peace of mind and allows you to invest in your future. Additionally, credit card debts come with some of the highest interest compounded daily and our debt grows exponentially when you don’t take action.

A big mistake people make when paying off credit card debt is to pay the minimum required amount and carry the remaining balance. You cannot get out of credit card debt fast when you only make the minimum required payments. Paying the minimum payment results in carrying your debt longer. The longer you carry your debts, the more money it costs you in interest charges. That is how a $10,000 credit card debt takes 10 to 15 years to pay off due to interest charges or turns into a $100,000 debt due to compound interest.

How do you get out of credit card debt fast? Using aggressive debt payment strategies works best when paying down credit card debt. I will cover these debt payment strategies in the following few paragraphs.

But, first, let’s see why you should pay off credit card debt fast.

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Why should you get out of credit card debt?

Carrying too much debt can be a nightmare as it puts a lot of stress on your finances. Having credit card debt, however, is a different story. The last thing you want to be associated with is credit card debt due to higher interest rates. Higher balances also lower your credit score due to increased credit utilization and a higher debt-to-come ratio.

Here are the benefits of getting out of credit card debt fast.

You save money on interest charges

According to LendingTree, the average credit card APR is 21.59% as of June 2024. This means for every $100 in credit card debt you carry, it costs you $21.59 per year. That is why getting out of credit card debt faster saves you money in interest charges.

Credit cards also come with different types of interests depending on the way you use the card. For example, the interest you pay on regular purchases such as grocery shopping is not the same as cash advance interest. A cash advance interest is usually higher than your regular interest and keeping that balance for a while costs you dearly in interest charges.

Getting out of credit card debt improves your credit score

As your credit card debt grows, your credit score decreases due to a higher credit utilization rate. The credit utilization represents how much you have spent compared to your total credit limit. Paying off your credit card debt quickly improves your credit score due to improved credit utilization. The credit utilization accounts for 30% of your credit score.

Paying off credit card debt early helps you invest in your future

As you pay down your credit card debt fast, you automatically save more money due to reduced interest charges. The more money you save, the more options you have to pursue other financial goals. For example, you can use your savings to save for an emergency fund, boost your retirement contributions, or invest in your future.

You have more options in your budget

When struggling with credit card debt, it usually leaves you with no options for other things you want or need. For example, your kids might not attend a good school or participate in a specific sport due to credit card debt. Credit card debt can also deprive you of life necessities such as taking a vacation at your dream location or having the wedding of your dreams. Once this debt is paid off, the money you save can be used to pursue your wants.

Paying off credit card debt gives you peace of mind

Credit card debt causes a lot of mental frustrations and stress especially when you have a higher balance. If you are not careful, this debt might become impossible to pay off and can quickly lead to financial hardships including default and bankruptcies. To mitigate these long-term financial issues, get out of debt fast. Nothing in life gives you emotional relief, lowers your stress level, and builds confidence than knowing you are debt-free.

Now that we have covered the benefits of being debt-free, this is the part where I show you how to get out of credit card debt fast and take control of your finances.

1. Start with a credit card with the highest interest rate/APR

The most expensive debt is the one that has a higher interest rate. The higher the APR, the more it costs you in interest charges per $100 of debt. That is why starting with a credit card that has the highest interest is always the best way to pay off credit card debt. This strategy is known as the debt avalanche strategy.

If you never heard of this debt management strategy to pay off credit card debt, it is simple to understand and implement. The debt avalanche method helps you pay off the debt with the highest interest rate first while meeting the minimum requirements for remaining debts.

How to use debt avalanche to pay off credit card debt?

To get started with the debt avalanche method, use the following steps.

Organize your credit card debts from the highest interest to the lowest interest.

Next, pay the minimum payment on each credit card balance. Then, allocate the remaining funds to the first debt with the highest interest rate. Continue this strategy until the first debt is paid off.

Once the first debt is fully paid off, move to the next debt with the highest interest and repeat the same process until all your debts are paid off.

2. Pay off the credit card with the highest balance

The second best way to pay off credit card debt is to pay off the credit card with the highest balance first. By default, all credit cards come with a higher interest rate. This means a credit card with the highest balance might cost you more money depending on your balance. For example, a credit card balance of $10,000 at a 20% APR will cost you more money than a $2,000 credit card balance even if you might be paying a 30% APR.

Let’s see if the numbers also support this argument. The card with $10,000 will cost you $2,000 per year at 20% APR while the card with $2,000 will cost you $600 yearly at 30%. From this example, you should pay off the $10,000 credit card first as it costs you more interest charges.

To use this strategy,

Organize all your credit cards from the highest balance to the lowest balance

Then, aggressively pay off the first credit card while meeting the minimum requirements on other credit cards

Once the first card is paid off, move to the next credit card and repeat the same process.

3. Start with a credit card with the lowest balance

If you like small wins and are looking for short-term motivation as you pay down your credit card debts, this debt management strategy will be right for you. Sometimes, it makes sense to eliminate the easiest ones first, especially when living paycheck to paycheck.

While starting from the smallest credit card debt will not help you get out of debt fast, it will lower the number of debts you carry and give you quick wins. For most people, small wins are what they need to keep going.

This strategy is known as the debt snowball method. To use the debt snowball method, refer to the following steps.

Organize all your credit card debts from the smallest to the highest.

Pay down the first debt while maintaining the minimum requirements on other credit card debts

Once the first debt is paid off, move to the next debt on the list and repeat the same process.

4. Consolidate your credit card debts

If you carry debt on many credit cards, consolidate them. Debt consolidation is a strategy to combine multiple debts into a single debt. Debt consolidation works best for credit cards because dealing with multiple credit cards simultaneously can get messy.

Instead of juggling multiple credit card debts, consolidate them into a single debt and pay off that one debt instead. If you are lucky, you might also qualify for a lower interest rate when consolidating your debts.

Here are different ways to consolidate your credit card debts.

Use the balance transfer

The balance transfer is a process where you transfer balances from different credit cards to a single credit card. This allows you to manage your debt and pay it off fast. You might also save money in interest charges if you qualify for a 0% introductory APR credit card.

Get a credit card consolidation loan

Another way to get out of credit card debt fast through consolidation is to get a credit card debt consolidation loan. This loan allows you to combine all your credit card debts into a single debt with one monthly payment. Credit card debt consolidation loans usually have lower interest rates and favorable terms. Additionally, making one monthly payment is easier than remembering multiple payments each month.

Use an unsecured personal loan

Personal loans are great for renovating a house, paying for a vacation, or paying off expensive medical bills when you don’t have an emergency fund. You can also use a personal loan to pay off credit card debt. There are two categories of personal loans. The first one is secured personal loans which require collateral to qualify. The second category of personal loans is unsecured personal loans which do not require collateral to qualify.

To get out of debt fast, apply for an unsecured personal loan and use it to consolidate your credit card debts. This will allow you to make payments on a personal loan instead of multiple credit cards. A good credit score helps you qualify for a lower interest rate on a personal loan.

You might also like: What is an unsecured credit card?

Get a 401(k) loan to get out of credit card debt fast

If you have been saving for retirement, you can qualify for a 401(k) loan and use it to pay off your credit card debt fast. Borrowing from your 401(k) is a great way to access equity without taking out costly private loans. With 401(k) loans, you can borrow up to 50% of your vested balance with $50,000 being the maximum you can take out of the plan. For example, if you have a 401(k) account, the maximum you can borrow is $50,000 since it is lower than 50% of your account balance.

A 401(k) loan is a great way to pay off your credit card debts because the remaining balance becomes a distribution when you default. Bear in mind that a 10% penalty will be applied to the defaulted balance if you are under 59^1/2 plus applicable tax.

You might also like: Pros and cons of borrowing from 401(k)

What to do if I cannot pay off my credit card debt?

While you might accumulate credit card debt hoping to pay it off someday, there are times you might face financial hardship and risk defaulting on your debt. To avoid defaulting on your debt, reach out to your credit card issuers to work out a debt payment plan that works for you.

Most companies are always willing to lower your monthly payment rather than lose the entire balance in default or go through the hustle of debt collection. Before you reach out to your credit card company, have proof of financial hardships to justify the reasons you are falling behind on your payments. Once all your data is collected, call the credit card company.

Another option is to consider a credit counseling company. Credit card counseling companies are usually non-profit and you might not get charged for their services as some of them partner with local government for the services they offer. Counseling companies help you manage your debts and establish a financial plan suited to your situation. Some of these organizations might also help you negotiate better terms with your credit card company.

Don’t be scammed

As you go through the process of getting out of credit card debts, it is essential to avoid debt settlement companies. Usually, these are online companies that charge upfront fees and promise to help lower your debt or make it vanish. While there are great debt settlement companies out there, you should always avoid companies that charge you money before they give you service.

Take control of your debts and don’t get scammed. If a company tells you to stop making minimum payments or communicating with your credit card company and says it will make your debt disappear, run for your life and money. You are being scammed.