It should be obvious by this point that having credit card debt is equivalent to inserting a siphon into your bank account. With a 15 percent industry average interest rate, credit card debt is actually probably the most expensive debt you’ll ever have to handle. What is the most effective approach to pay off credit card debt, then?
The good news is that there are alternative efficient ways to pay off credit card debt even if you are unable to send a sizable check to do so.
Personal Loan Use
An unsecured installment loan is a personal loan. It’s not that difficult to qualify for personal loans way above $10,000 if you have good credit. Your credit scores should soar through the roof if you use the money from a personal loan to pay off credit card debt because you’ll be converting score-harming revolving debt into score-beneficial installment debt.
It’s likely that the interest rate on the installment loan will be significantly cheaper. When compared to credit card debt, which could cost as much as the high 20s, installment loans with strong credit can be obtained in the low teens. Additionally, compared to credit cards, installment loans have a significantly shorter payback period.
Balance Transfer Use
If your credit is good, you’re probably already receiving offers for credit cards with 0% APR. There is a clear reason why these are alluring. It is a significant trade-off in your favor to convert your high interest credit card debt to low interest credit card debt.
Many of these credit cards enable you to make new purchases as well as transfer your whole interest-bearing balances from previous cards—all at 0% interest for a specified amount of time. If you are disciplined, you can aggressively tackle the sum during the grace period, which is often between 6 and 12 months, in order to pay off the debt.
Making Use of a Debt Management Program
The member organizations of the National Foundation for Credit Counseling, or NFCC, offer a debt management program (DMP). You agree to pay a lower amount directly to the DMP administrator, who then pays your credit card companies, when you sign up for the plan. In most circumstances, even if your payments fall short of the minimum required under the contract, your interest rate is reduced, fees are waived, and you are still regarded to be making “on time” payments.
Because a DMP can take several years to pay off, some people choose not to finish the plan. However, if you do enroll in a DMP and keep up with your payments, you will leave the program debt-free and with good credit reports and ratings. The nicest feeling in the world is knowing that you were able to pay off your debt without the aid of debt settlement agencies or bankruptcy lawyers.
A home equity line of credit, sometimes known as a HELOC, is a revolving line of credit backed by the equity in your house. You can utilize that credit line anyway you’d like—to pay off debt, purchase a car, cover education costs, or merely to have as an emergency fund. Due to the tax deduction for interest paid and the generally low interest rates, HELOCs are frequently utilized to pay off credit card debt.
What happens if you fall into default when using a HELOC is where the risk lies. A HELOC is backed by the equity in your home, so if you don’t repay the loan, the bank may foreclose on your home. For other people, it would be far too risky to pay off a small amount of credit card debt.