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Carrying out your credit card balance can be expensive. Because credit card balances they are open ended, you don’t have a final payment date, which can make it difficult to create a clear debt repayment plan. Also, the interest on that debt can go up, especially if you keep letting your balances and new expenses carry over from month to month. But that doesn’t mean you can’t find a way forward, especially if you have a manageable amount to repay, like $ 5,000.
If you have $ 5,000 in credit card debthere are four good strategies to pay off your balances.
A debt consolidation loan is one way to pay off high interest credit card debt. Credible makes it easy see prequalified personal loan rates from various lenders, all in one place.
Why You Should Pay Off $ 5,000 of Credit Card Debt Quickly
Credit cards have high interest rates and this high cost is the number one reason you can benefit from pay off credit card debt as soon as possible.
It’s important to note that while $ 5,000 in credit card debt may not seem like a lot, it can go up. For example, if you have a credit card balance of $ 5,000 with an interest rate of 18% and you make a monthly payment of $ 100, it will take nearly eight years to pay off and you will pay $ 4,311 in interest, almost as much as yours. original balance. It’s easy to see how this debt could follow someone around for a long time and cause them financial stress if they don’t take steps to pay it off quickly.
Having debt of any kind can lead to feelings of stress, anxiety and depression. Pay off your debt in full as fast as you can save moneybut it can greatly benefit your mental health.
14 MILLION AMERICANS HAVE OVER $ 10,000 IN DEBT WITH CREDIT CARDS, THE SURVEY SAYS: 3 WAYS TO PAY FAST
4 good ways to repay $ 5,000 of credit card debt
There is no right way to pay off credit card debtbut these four popular debt repayment methods are a good place to start.
What works best for you will depend on your unique financial situation and which method you find most motivating.
1. Debt Snowball Method
The debt snowball method requires you to make all the required minimum payments on whatever source of debt you have each month, but to take all the extra money you can afford to spend and put it on the credit card with the lowest balance. This way, you can make faster progress by paying the smallest balance.
Once paid, you can allocate that card’s minimum monthly payment and any extra funds to pay for the card with the next smaller balance, and so on. This strategy won’t save you much on interest, but it can be motivating to see balances disappear more quickly.
Good for: Those who want to see quick wins to help them stay motivated to pay off their debt
2. Debt avalanche method
With the debt avalanche method, you prioritize paying the credit card with the highest interest rate while making minimum payments on other balances. Once you have paid for that card, you will put the money you were paying towards the card with the next highest interest rate, and so on, until you have paid all your balances.
Since you’re tackling your higher interest balances first, this method can help you save more on long-term interest costs, but it may not be as motivating as the debt snowball strategy.
Good for: People who want to save more on interest costs
3. Consolidate with a debt consolidation loan
If you feel overwhelmed by having multiple sources of debt, you can combine them into a single source of debt by taking out a personal debt consolidation loan. When you apply for this new loan, if you can benefit from a better interest rate than you have on average on all your sources of debt, you can save on interest. The downside here is that a good credit score is usually required to qualify for a better interest rate.
Good for: People with good credit who want a clear due date for when their debt is paid off
Credible visit to compare personal loan rates from various lenders, without affecting your credit score.
4. Open a balance transfer card
Similar to a debt consolidation loan, it is possible use a balance transfer card to consolidate multiple sources of credit card debt. The key to getting the most out of a balance transfer card is to look for a card that offers you a 0% introductory April. You won’t have to pay any interest during that time, which can make it easier to pay off your debt faster.
But you’ll typically need good credit to qualify for a balance transfer card with a 0% April offer. And if you’re still carrying a balance at the end of the promotional period, you’ll start accruing interest at the card’s normal rate, which can be high.
Good for: People who can afford to pay the balance in full before the end of the introductory period in April
IS IT BETTER TO SAVE OR SAVE?
4 bad ways to manage credit card debt
Some debt repayment methods are far less helpful – and in some cases harmful – for getting out of credit card debt. You should avoid these four options if possible:
- Touching Home Equity – It is generally not a good idea to use a home loan to pay off credit card debt, even if such a loan may have a lower interest rate. A home loan is secured by your home. If you can’t pay off that debt, you could lose your home.
- Take out a 401 (k) loan – Borrowing money from your 401 (k) to pay off your credit card debt doesn’t just hurt your retirement savings progress. This move also translates into paying interest to borrow your money and the experience of automatic deductions on paychecks until the loan is repaid.
- Pursue debt repayment – Debt settlement companies claim they can help you pay off or renegotiate your debt to make it easier to repay. This is not something they can guarantee and they often charge high fees.
- Bankruptcy filing – Filing for bankruptcy may seem like a way to get a clean slate, but this process can seriously damage your credit. Bankruptcy stays on your credit report for seven to 10 years and can make it difficult to qualify for a product loan, get good interest rates, and even rent an apartment.
How to avoid credit card debt in the future
Once you’ve paid off $ 5,000 of credit card debt, it’s important to keep a clean slate. Here are some ways you can avoid credit card debt in the future:
- Understand how the debt occurred in the first place. To prevent debt from piling up again, think back to where the debt came from. Have you spent too much on unnecessary purchases? Is your rent too high? Did you lend too much money to friends? Try to get to the root of the problem so that you can avoid these problems in the future.
- Create or balance your budget. See where you can make improvements to your budget to prevent expenses from sneaking up on you again. Many free budget management tools are available online to help you keep track of your expenses.
- Build an emergency fund. One way to avoid taking on high-interest credit card debt in the future is to have an emergency fund ready and waiting to help you when unexpected expenses arise, such as car repairs or medical bills. Try to save three to six months of living expenses in your emergency fund.
If you are ready to apply for a personal loan as a first step towards achieving your debt repayment goals, Credible allows you to quickly and easily compare personal loan rates to find one that works for your unique situation.