If you’re searching for the best way to pay off credit cards faster, you are ready to gain your financial freedom. Paying off credit card debts can be overwhelming, especially when it gets out of control. You end up using all your savings to settle the debts.
Unfortunately, many Canadians are victims of credit card debts. According to Financial Post, Canadians cumulatively owe $100 billion in credit card debts. The good news is, you can quickly get out of the debts when you implement the tips we are about to share.
Why You Need to Pay off Credit Cards Faster
The first thing you should know is that multiple credit card debts can ruin your financial life. It’s no doubt that credit cards are excellent financial tools of convenience. However, the debts can significantly lower your credit scores when not paid at the right time.
Credit card payment history contributes the largest to your credit score. So, you should always pay the debts on time to avoid late payments. Credit card utilization also carries significant weight on your credit scores. So, try to keep your credit card balances low.
How to Pay Off Credit Cards Fast
So, what’s the best way to pay off credit cards faster? In this article, we explore all the options to help you settle multiple credit card debts quickly. Keep reading to learn more.
1. Consolidate Your Credit Card Debts
If you are overwhelmed with paying off multiple debts simultaneously, you can consider debt consolidation in Canada. With this financial strategy, you will combine several high-interest credit card debts into one more manageable and affordable payment.
You can take out a credit card consolidation loan to pay off the credit card balances. The good news is, such loans have lower interest rates and can help you save a lot of money. However, you must meet all the requirements for the service.
Here are the factors that can improve your chances to qualify for consolidation loans.
- Get a high credit score of at least 660 to qualify for larger loan amounts
- Improve your income streams to avoid late payments
- Lower your debt-to-income ratio by increasing your debt payments
- Opt for a loan for unsecured debts
- Prepare good collateral for secured debt consolidation loans
Consolidating credit card debts with a personal loan of lower interest can also help you save thousands of dollars. Notably, it’s the fastest way to pay off credit card debts.
2. Divide Credit Card Balances into Smaller Chunks
Nothing is more intimidating than tackling multiple credit card debts all at once. It feels overwhelming to focus on larger amounts of debts. That’s why you need to divide your huge credit card debt into smaller chunks that you can easily manage.
For instance, it can be stressful to think of owing around $25,000 in a credit card debt. You’ll even find it quite overwhelming to pay off the debt. To avoid stress, you can think of owing five different chunks of debt worth $5,000 each.
Although dividing your debt into smaller pieces doesn’t change your overall credit card balance, it helps you focus on each debt segment, relieving the pressure. You will find it more manageable to handle smaller debts at a time than handling a larger debt at once.
3. Start with High-Interest Credit Card Debts
The best way to pay off credit cards faster and affordably is by first settling credit card balances with the highest interests. But why should you do that? With high-interest credit card debts, the interest amount relative to the principal balance is very high.
In other words, you’ll end up spending more money on interest payments when you prolong the payment period. But that shouldn’t be the case. Your primary objective should be to reduce the principal amount to lower the interests accruing over time.
Besides focusing on paying high-interest debts first, also focus on paying down the principal credit card balances. That will help you save a lot of money on interest payments. After paying off a credit card debt with the highest interest rate, move to another with the second-highest interest rate.
4. Start with the Credit Card Debt with the Lowest Balance
While it’s wise to pay off high-interest credit card debts first, it also makes sense to start paying down credit card debt with the smallest balance.
For example, let’s say your total debt in three different credit cards is $15,000. If the balances in each credit card are at $3,000, $5,000, and $7,000, it will be easier to pay off the $3,000 debt first rather than pay the $7,000 debt.
When you start with the smallest credit card debt balance, you’ll knock out your debts quickly and get motivated to move to the next smallest balance (and so on). This way, you’ll pay off all your credit cards faster, giving you peace of mind.
The smaller wins will boost your confidence to tackle more credit card debts. However, this financial strategy doesn’t factor in interest rates. So, it can be costly in the long run, especially if the largest credit card balance carries a high-interest rate.
5. Increase Your Credit Card Payments
The less money you pay towards your credit card balances, the longer it will take to settle the debt. So, the fastest way to pay off credit card debts is by increasing the payments. Pay more than the minimum to avoid additional fees and penalties.
Also, if your payment is above the minimum, you’ll spend little in interest. For example, let’s say that the credit card interest rate is 14 percent, on average. So, your credit card debts will be getting 14 percent worse monthly. By raising your payments, you’ll reduce the credit card balances subject to the 14 percent interest rate.
6. Increase Your Income Sources
Another best way to pay off credit cards is by increasing your income. You should figure out how you can get more funds to add to your monthly payments. Thankfully, there are several ways to earn extra cash. Here are some options to consider.
One excellent way to get funds to pay off credit card debts is by tracking and reducing your monthly expenses. Look for opportunities to cut back your costs. For instance, making coffee at home instead of buying it every morning can save hundreds of dollars.
7. Take Advantage of 0% APR Credit Cards
Still, wondering how to pay off credit card debt fast? You can take advantage of credit cards with 0% introductory rates. These cards don’t charge any interest on credit card balances for a certain duration, helping you save hundreds or thousands of dollars.
One great thing about this financial strategy is that you can transfer an existing high-interest credit card balance to 0% APR credit card. In most cases, the 0% APR credit cards offer a grace period of around 6-24 months.
When the grace period elapses, you’ll resume paying the interests at a rate influenced by your credit profile, payment history, and other factors. To maximize your 0% APR credit card’s benefits, pay off the entire credit card debt during the grace period.
It’s very difficult to achieve your financial freedom with big credit card debts on your back. Now that we’ve shown you the best way to pay off credit cards take a bold step to implement all the strategies. If you have multiple credit card debts, target one debt at a time, starting with the smallest debts or debts with high-interest rates.