Cheapest Way to Pay Off Your Credit Card Debt

Thom & Associates Financial Planners Inc. Financial Leave a comment  

As credit card debt increases it can throw your life out of balance as stress levels increase. What can you do about it?

If you’re struggling with credit card debt, it makes sense that you want to pay it off quickly. The faster it is paid off, the better your credit…..the faster you can focus on saving money…..the sooner you can enjoy one less stressor.

However, paying it down fast may not be your primary goal. You may, instead, look to pay it down as cheaply as possible.

The cheapest way to pay off your credit card debt isn’t the same for everyone.

It depends on your debt balance, the interest rates you are being charged and your current assets. Let’s take a look at a few possibilities.

Use Your Savings

If you have a savings account, take a look at the amount of interest you’re earning on that money. Now take a look at the amount of interest you’re paying on your debt. If you’re paying more than you’re earning, consider cashing out your savings to pay off your debt. Wipe away your debt and then you can once again focus on building your savings. Without the monthly credit card interest payments, you may be able to rebuild your savings quite quickly.

Debt Consolidation

Can you qualify for a debt consolidation loan? If so, at what interest rate? Compare the interest rate of a loan compared with the interest rate you’re paying on your credit card debt. Most often you’re paying credit card companies much more than you’d be paying for a personal bank loan. That being said, make sure once you’ve paid off your credit card debt that those cards get cut up or used sparingly. If you run up a balance on them again, you will be repaying the bank loan and high interest credit card debt again.

Home Equity

Home equity loans can be an option depending on the market, how much equity you have in your home and interest rates. Like a debt consolidation loan, you’re in danger of running up your credit cards again and paying on two loans simultaneously.

Home refinancing is also an option however, there are usually penalties associated if your mortgage is not up for renewal. At next mortgage renewal time consider a home equity line of credit, they can help with high interest debt and growth investment savings.

Borrowing from Friends or Family – for many this is just not an option.

The More Drastic

In all cases, if you have too much credit card debt you need to consider cutting back on your expenses and pay more than the minimum balance on your cards each month. This is often the most effective and cheapest way to pay off the credit card balance although usually the hardest for most people.

“Just paying it off” takes sacrifice from you and your family.  Bringing in more income or reducing expenses by getting a second job, doing freelance work, selling your car or valuables, or moving into a cheaper home are some of the hardest decisions to make.

Just remember, the faster you pay off your credit card debt, the less interest you pay and the less stress you will feel. Reducing debt frees up money to save or spend on the special things in life.  We can help, give us a call.