6 Ways To Pay Off Credit Card Debt in Less Than 5 Years
Written by
Cindy Lamothe
Edited by
Elizabeth Constantineau
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Anyone can tell you that being loaded with debt is not fun. It significantly limits what you can do financially and how far your income will take you. Trying to pay down a mountain of debt in less than five years can feel like an uphill battle, but there are some approaches that can help you.
That said, it’s critical to understand the underlying cause of your credit card debt, according to Nathan Richardson, finance expert and founder of Complex Search. “Did you overspend on frivolous purchases? Were there any unanticipated costs that you had to charge to your credit card?”
Richardson said identifying and admitting the causes of your debt can help you make the necessary changes in your spending habits. Here are some expert-backed ways to reduce your debt before you hit that five-year goal.
Create a Budget and Track Your Spending
Creating a budget is the first step to taming your credit card debt. “A budget is like a map that shows you how much money you have coming in and going out,” said Linda Schroder, real estate investor and owner of Cash for Houses. “It helps you identify where your money is leaking and where you can cut back.”
To create a budget, you can start by listing all your sources of income. This includes your paycheck, any side hustles, and any other sources of money. Then, list all your expenses. This includes rent or mortgage payments, utilities, groceries, transportation, entertainment and anything else you spend money on.
Once you have your income and expenses listed, Schroder said, you can start to create a plan for how you’re going to spend your money. This might include setting aside a certain amount for food, transportation and entertainment. It might also include setting aside some money to put toward your credit card debt.
“The key is to be realistic about your income and expenses,” she explained. “If you’re spending more than you make, you’ll need to find ways to cut back on your spending.”
This might mean cooking at home instead of going out to eat, taking public transportation instead of driving, or canceling unnecessary subscriptions.
Pay More Than the Minimum Payment
“The minimum payment on your credit card is like putting a Band-Aid on a wound,” Schroder said. “It might stop the bleeding temporarily, but it won’t heal the wound.”
She said to really get rid of your credit card debt, you need to pay more than the minimum payment. “The more you can pay above the minimum, the faster you’ll be able to pay off your debt.”
This is because you’ll be reducing the principal balance, which will lower the amount of interest you pay over time. To make extra payments toward your credit card debt, Schroder recommends setting aside a certain amount of money each month. She said, “You can also make lump sum payments whenever you have some extra cash.”
Prioritize Your Debts
According to experts, there are two main ways to prioritize your debts: the debt avalanche method and the debt snowball method.
The debt avalanche method involves paying off your debts with the highest interest rates first. “This will save you the most money in interest over time,” Schroder said. In contrast, the debt snowball method involves paying off your debts with the smallest balances first. “This can be a more motivating way to pay off your debt,” Schroder said, “because you’ll be able to see progress more quickly.”
Jon Morgan, CEO of Venture Smarter, recommends the snowball approach. He says to start out by listing all your credit card debts from smallest to largest balances.
“While maintaining minimum payments on all cards, throw any extra money you can at the smallest debt,” he explained. “Once that’s paid off, roll that payment into attacking the next smallest one, creating a snowball effect.” It’s not just about numbers, he argues; it’s about gaining momentum and psychological victories.
Balance Transfers
“If you have $15,000 in credit card debt, you must employ a few tactics to pay it off in less than five years,” said Jake Hill, CEO of DebtHammer. “I suggest taking advantage of low or zero-interest balance transfers.”
As long as you can pay off the full balance before the end of the introductory term, Hill said, using a balance transfer can save you hundreds of dollars in interest.
“I also suggest isolating one credit card account at a time for larger monthly payments,” he said, “and remaining consistent with those payments until you have paid off the card.”
He said this approach is more effective than paying your minimum payments or trying to pay just slightly more than the minimum on every card.
Consider Debt Consolidation
“Imagine you’re juggling multiple balls, each representing a different debt, and each ball is gaining momentum with increasing interest rates,” Schroder described. “Debt consolidation is like bringing all those balls together and placing them into a single, more manageable container.”
When you have multiple debts with varying interest rates, she said, it can be challenging to keep track of payments and make significant progress towards debt elimination. Whereas, debt consolidation simplifies the process by combining your existing debts into a single loan, typically with a lower interest rate.
“Think of it like merging multiple streams of water into a single river,” she added. “The flow becomes more manageable, and you can focus on directing the water towards debt repayment rather than managing multiple streams.”
Increase Your Income
Experts agree that increasing your income is like giving your debt repayment efforts a boost. You can consider increasing your income by picking up a side job or finding other ways to make money. This can go a long way in assisting you in your overall debt repayment plan.
When you have more money coming in, you can allocate more funds toward debt repayment, accelerating the process and achieving financial freedom sooner.
“Imagine you’re watering a plant that represents your debt repayment efforts,” Schroder said. “The more water you provide, the faster the plant will grow and the debt will diminish.”
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