While extremely convenient and easy to use, credit cards can still be a hassle, especially when it comes to keeping track of payment dates and staying within your credit limit. Falling into debt can happen relatively quickly and, if left unattended from month to month, can eventually spiral out of control.
That said, if you are already dealing with credit card debt, it’s okay. Being conscious of your debt is the first step in addressing the issue. Multiple online platforms exist to help you calculate the amount you owe so you can move forward and begin to pay it off.
Read on to learn more about credit card debt, the process of credit card debt consolidation, and how to use a credit card payoff calculator.
How can you pay off credit card debt?
Not only will sorting out your outstanding debt — whether it’s from student loans, car loans, or credit cards — boost your credit score, but it will also allow you to save more for the future, as well as spend your money on other, more pleasurable things.
There are a few ways you can approach outstanding debts. The debt snowball method and the debt avalanche method are two common strategies. Debt consolidation is also an option, and all are discussed further in detail below.
Debt snowball
This method centers on making minimum monthly payments on all your debts. As a result, you "free up" cash since your payments aren’t so voluminous. The "extra money" goes toward the credit card with the lowest balance. Once you fully pay off the first card, you move to the credit card with the second-lowest balance. And the cycle goes on, "snowballing" until you've paid off each card.
Debt avalanche
This strategy is nearly identical to the snowball method, except you prioritize the credit card with the highest balance. You will still be making minimum payments, but you'll be targeting your most significant debt. This method is more aggressive than the former, but you'll see bigger returns quicker.
Remember, everyone's financial situation is different. So just because it may take you a year, for example, to pay off certain debts as opposed to another person who only takes nine months to pay off their debts, this does not mean you are any worse off than they are.
Understanding how credit card debt consolidation works
This is a great strategy to consider if you have a healthy credit score. The purpose of consolidation is to manage an array of debt types such as smaller, personal loans, bills, and of course, credit cards.
Consolidation refers to paying off your current debts by taking out a new loan or a new credit card. "To consolidate" means you are essentially combining multiple credit accounts into a single arena. Keep in mind that each credit loan contract adheres to different terms, and how and when you must make regular payments will vary. So, while you may have one larger loan, you are just dividing up that sum to pay off each individual loan.
Acquiring a low interest rate on your new loan is extremely necessary for this to be effective. Otherwise, you're simply adding another unnecessary layer onto your already-tipping cake. Also, try making similar payment amounts from month to month. Consistency will help you pay off your debt faster.
Both banks and credit card companies issue debt consolidation loans.
Calculate your own credit card payoff
Everyone is perfectly capable of paying their debts off on their own, but if you're not entirely comfortable doing so, there are various platforms online to aid you in this task. These tools are free to use.
Typically, most calculators will tell you how long it will take you to pay off your debts depending on the total amount you owe, your interest rate, and the volume of your monthly payments.
Once you fill in all the required fields, the calculator will generate the following information: the month and year you'll be debt-free, the number of mandatory payments you must make, the total amount of interest you will pay, as well as the entire payment amount plus interest and any principal payments you may have already made.
The calculator featured on the Experian website, one of the three major credit bureaus, is excellent and can be found here.
The tool included on the Nerdwallet website is also good, and can be accessed here.
Your results will help you decide on the best strategy moving forward. Developing a budget and debt consolidation strategy, or even speaking to a professional, are just a couple of options available to you.
FAQs
What are the key terms I need to understand before doing this?
Described below are some concepts you should be familiar with regarding credit cards and debt.
APR: APR stands for annual percentage rate. This is the amount of interest and fees associated with a debt every year.
Minimum payment: Credit cards are known as revolving loans, meaning you can automatically and continuously borrow up to a predetermined limit after you settle the first loan. These loans require borrowers to make minimum payments every month. This may seem reasonable but making minimum installments instead of paying down larger sums means it will take a longer amount of time to become debt-free.
Credit score: Your credit score is a three-digit number that represents your financial health. Banks and other lenders, like credit card companies, refer to this number because it indicates how responsible you are. Typically, those with better credit scores are eligible for credit cards with little to no interest rates and higher credit limits. They may also be able to benefit from more favorable loan terms.
But credit scores and credit cards are not something you should take lightly. The potential to fall into debt is always there, but with the correct tools and financial smarts, you can fulfill your financial goals.
That said, allow us to introduce Point Card.
You work hard for your money, and Point works hard for you in return. Point is an alternative tool that allows cardholders to embrace their financial independence and spend their own money while receiving exclusive benefits, including unlimited cash-back on all purchases. As you work toward paying off your debts and building your wealth, you can rest easier knowing that Point will have your back every step of the way. No interest rates, fraud protection with zero liability, and rental car and phone insurance are just a few of the safety nets that Point Card members enjoy. Additional perks include bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shops.
Simply put, Point is an excellent tool for intelligently navigating your financial journey.
How much interest will I pay on my credit card?
Remember, if you do not already know, online interest calculators are your best friend when calculating just how much interest you are required to pay back on your card. Additionally, you can also contact the credit card company or your bank for more information.
What is a finance charge on a credit card?
A finance charge is any charge or fee associated with borrowing money. This entails compounding interest and extra costs, such as cash withdrawal fees, transactional fees, or late fees.
Made to spend.
