These 4 Simple Tips Could Quickly Pay Off Your Credit Card Bill
Owing $5,000 on a credit card is so overwhelming that your first instinct may be to not pay it for as long as possible.
Don’t do it. It would be an expensive delay.
Assuming a 15% interest rate on a card you’ve had for years and a minimum monthly payment of $150 (which is about what the minimum payment would be on a $5,000 balance), it would take almost four years to pay off the balance. During that time you’ll pay $1,508 in interest.
Unless you can pay the balance off at once, it’s going to cost you some money. Paying $1,000 a month in the above scenario would still take six months to pay off and include $196 in interest.
The problem, of course, is coming up with $5,000 (or whatever your large credit card balance is) to pay it off and be done with it.
That task can be overwhelming, but with some work and by taking a few steps at a time, you should be able to tackle that debt. During your paydown, put your credit card away and don’t use it. There’s no point in racking up more credit card debt if you’re working hard to pay off an enormous debt from previous spending.
Here are some ways to save big to pay off a big credit card bill:
1. Use Your Savings
To save yourself $1,500 or so in interest by just making the minimum payment, it can be worthwhile to pull the total amount due from your savings account and pay the credit card off.
This is a difficult choice to make. If your savings account is basically your emergency fund and you’re saving for a possible job loss, then you may not want to do this.
However, if the economy is going great and you’re secure in your job, then pulling money from an emergency fund can be worthwhile. Another option is to stop contributing to your emergency or savings account for awhile and use that money to pay off the credit card bill. But that will take a lot longer than pulling the total out of savings.
You may also have a savings account for other purposes, such as a down payment on a house, vacation, or with no savings goal at all. If you don’t mind putting those off for a year or so, then paying off a credit card bill can make sense.
2. Get a Personal Loan
Swapping out one loan for another sounds like making a deal with the devil, but it doesn’t have to be.
If the interest rate on a personal loan is significantly lower than your credit card’s rate, then you can pay the card off completely and have a lower payment on the personal loan.
The free online loan marketplace Credible helps consumers find the best loans by comparing lenders and rates through its network of lenders.
Credible doesn’t provide loans. It provides borrowers with personalized loan offers from multiple lenders in real time without a hard credit check. Users choose the lender they want, and the lender will contact them to finish the loan process.
Loan amounts range from $1,000 to $100,000. You can get prequalified rates in two minutes.
Another option is Fiona, which is another online marketplace for personal loans and other financial services.
If you need a loan quickly, Fiona can match you with personalized loan offers in less than a minute, based on your creditworthiness. People with credit scores as low as 580 can get unsecured loans from $1,000 to $100,000. Terms generally range from 24 to 84 months.
You fill out a simple form at Fiona’s website, and it will check offers from its providers in seconds. Loans can be searched based on credit scores, location, loan amount, and your needs.
3.Save on Insurance
Shopping for the best deal on insurance for your home and car can save you thousands of dollars each year.
The key, of course, is putting that savings aside to pay off your credit card bill.
Reducing your insurance costs by raising your deductible or bundling can also help, as can dropping certain types of coverage on your auto policy.
To compare prices on auto insurance policies, look to EverQuote to match you with insurers that best fit your needs.
You start by telling EverQuote a little about yourself and your car. It then filters to the best prices/options and you connect with licensed agents. EverQuote says it helps consumers save $500 a year on insurance.
To help you get the best quote, the site helps you:
- Determine what kinds of auto insurance you may want or need.
- Know what level of coverage you want, such as $25,000 in property damage vs. $100,000.
- Learn the average cost of $138 per month, based on good drivers with the “typical” level of coverage.
Another option is the auto insurance website Savvy Insurance. Instead of just comparing other insurers, it connects to your existing insurance to see if you’re paying the lowest price.
It reviews your savings and locks them in with your credit card. Savvy cancels your old policy and reimburses you for any fees.
Other benefits of Savvy:
- You don’t fill out forms. Savvy does this by using your existing insurance information.
- You pay in one step, with Savvy coordinating enrolling your new insurance and cancelling your old one for the same date.
- Bank-grade encryption is used.
4. Get a Side Job
We don’t want to downplay the savings that can come from cutting expenses, both big and small.
Not going to Starbucks or eating out, or cutting the cable TV cord and turning off the lights when you leave a room can all add up to significant savings over time.
But that’s the drawback. They take time to add up, and the goal here is to save thousands of dollars quickly to pay off a large debt.
A better solution is to think of it in a different way. Instead of saving money (unless it’s a big save such as with lower auto insurance), add to your income by taking on a second job.
You can create a side job on your own, such as being a tutor, or you can find an employer such as Lyft to work for a few hours a week.
Use all of the money you earn from a side job to pay off your credit card.
Then put that card away and vow to only use it in emergencies. Or if you do use it regularly, make sure you’ll have enough money to pay it off when the next bill arrives.
Amassing a large debt again, as you’ve probably come to realize during the long payoff period, is something you don’t want to do again.