Paying Down Credit Card Debt 12 Months to Financial Fitness
4 min. read
By: FCU Team
Are you currently struggling with credit card debt? A powerful financial tool, credit cards afford us the ability to make expensive purchases we otherwise would not be able to make. The issues arise when you don’t have enough money to make your payments on time and in full. Join us in our fourth installment of the 12 Months to Financial Fitness series as we tackle how to pay down credit card debt.
Ways to Pay Down Credit Card Debt
While not an all-encompassing list, you’ll find a few ways to get started below!
Make Payments on Time
The first step towards paying your credit card is debt is to ensure you can make your payments on time, every month. This ensures that you’re not incurring any fees or taking a hit to your credit score. Missing a payment can lower your credit score by 60 to 100 points! While it’s beneficial to pay off the entirety of your credit card bill before interest kicks in, we know this is not the reality for many people. In these cases, just pay off the minimum due.
If you’re struggling to plan for your payments each month, credit card payments and beyond, a budget is the best way to get an overview of your financial situation today. If you’re ready to start, here’s how to build your budget.
Pick a Debt Repayment Method: Snowball and Avalanche
If you have several credit cards or a lot of debt in general, a debt repayment method can help keep you focused. You may even save money in the end!
The two methods we recommend are the snowball and avalanche methods. The snowball method involves creating a payment plan that revolves around paying off the loan with the smallest balance first. The avalanche method on the other hand focuses on tackling debts by prioritizing the one with the highest interest rate and working your way down.
For a comprehensive overview, look at our debt payment strategies blog. Whichever strategy you pick, you’ll be on the path to living a debt-free life.
Debt consolidation is another method used to manage debt. It involves taking out a single loan at a lower interest rate to pay off other existing loans at a higher interest rate. While it sounds like a no-brainer, debt consolidation isn’t an optimal solution for everyone. As with many other financial strategies, your situation may vary.
When to Consolidate Debt
Debt consolidation, whether through a personal loan or a credit card, is usually best when you stand to save money through qualifying for a good interest rate. In addition to personal loans and credit cards, debt consolidation is also possible through home equity loans.
Theoretically, a single debt to repay, as well as a lower interest rate, can make it easier for you to organize your finances and make paying off debt a priority. To qualify for a good interest rate, you’ll need a good enough credit score. If you’re interested in raising your score, refer to this recent article!
When to Not Consolidate Debt
You shouldn’t consolidate your debt as your first strategy. Attempting the previously mentioned snowball and avalanche debt repayment strategies may prove more beneficial. You also should avoid consolidating if you’ll end up with a high interest rate loan, costing you more money throughout the life of the loan.
FCU is Here for You
We understand debt can be a daunting obstacle to tackle, that’s why we’re here to help! In addition to financial education resources, online banking financial wellness tools and financial calculators, our member service representatives are standing by should you need assistance!