6 Ways to Pay Off Multiple Credit Cards
Carrying credit card debt can be stressful enough as it is. But, when it’s spread across multiple cards, your debt burden can become confusing and difficult to manage. Even worse — your monthly credit card payments don’t seem to move the debt needle at all because you’re spreading your resources too thin. Don’t worry, though. With the right strategy, you can shed the weight of multiple creditors. Depending on your financial situation, there’s a best way to pay off multiple credit cards.
Here are 6 ways to pay off multiple credit cards:
- Determine your financial standing.
- Get quick wins with the debt snowball method.
- Save money on interest with the debt avalanche method.
- Take out a personal loan to consolidate credit card debt.
- Use a balance transfer credit card to consolidate your other cards.
- Apply for a home equity loan to pay off your credit cards.
1. Determine your financial standing.
Before you can effectively tackle your credit card debt, you need to know your current financial standing, which is comprised of:
- A complete account of your credit card debt to include creditor names, balances, interest rates, due dates, and minimum monthly payments.
- Your budget and spending patterns. How much money can you afford to throw at your debt? Are there ways to reduce spending or increase income to inflate that number?
- Your creditworthiness which encompasses your credit report and credit score. Reviewing your credit report at least annually to check for errors is super important — and it’s free.
Having the above information handy will help you to evaluate the following credit card debt repayment methods.
2. Get quick wins with the debt snowball method.
If you need a confidence booster when it comes to paying off credit card debt, the debt snowball method may be the right fit. Going this route, you put as much money as your budget allows towards the credit card with the lowest balance, while paying the minimum on your other cards. Once the smallest balance is paid off, you focus your efforts on the next smallest credit card account on the list and repeat until you’re debt-free. You may pay more in interest with this approach, but it can help you stay motivated.
3. Save money on interest with the debt avalanche method.
If you want to save as much money as possible when paying off your credit card debt, the debt avalanche method is probably more your style. With this approach, you funnel as much money as possible toward the credit card with the highest interest rate, while making the minimum payment on the other accounts. Once that credit card is paid off, you shift your cash flow to the account with the next highest interest rate on the list and repeat until you’re debt-free.
4. Take out a personal loan to consolidate credit card debt.
Many banks, including online lenders, offer personal loans specifically designed to consolidate credit card debt. In fact, some financial institutions even offer to send funds directly to your credit card companies if you’re approved. If you have a solid credit history and a low enough debt-to-income ratio, you may qualify for a much lower interest rate than you had on your credit cards. Plus, you’ll only need to make one monthly payment instead of several.
Be aware, however, if your credit score isn’t that great, you may not receive a favorable interest rate. In addition, some personal loans charge origination fees, which is a percentage of what you borrow, taken right off the top as a one-time payment. Be sure to factor this in when deciding how much money to borrow and read all of the fine print before signing anything.
5. Use a balance transfer credit card to consolidate your other cards.
Many credit card companies offer balance transfer credit cards to customers with good credit and sufficient income. If you qualify for one of these cards, you could use it to pay off your other credit card debt. This will enable you to streamline your debt repayment (hello, single credit card bill!) and save a bundle on interest (you may qualify for an introductory interest rate as low as 0% on your transferred balance!).
It’s important to note, however, that your new credit card issuer may charge a fee to transfer your balances, in addition to an annual fee. And, if your credit score is less than stellar, you likely won’t qualify for the best interest rate. Further, the low introductory interest rate won’t last forever so any remaining balance after it ends will be subject to the card’s standard interest rate — which may be higher than your original credit card. So, please do the math and read over all of the balance transfer terms carefully before moving forward.
6. Apply for a home equity loan to pay off your credit cards.
If you’ve been paying on your mortgage for a long time or your home’s value has appreciated significantly, you may have built up a sizeable amount of equity. A home equity loan lets you can tap into that equity and use the money to pay off your credit card debt. If approved for the loan, the interest rate will typically be much lower than your credit cards and you’ll be able to simplify your debt payments.
But, don’t get too excited just yet. This loan, like your original mortgage, comes with closing costs. So you’ll have to factor those expenses in when determining if it’s a good deal. Further, if you default on your home equity loan, the bank could foreclose on your house — a sobering thought!
Pro Tip: If you take out another loan or line of credit to pay off your credit cards, be sure to only borrow enough money to consolidate your existing debt. Otherwise, you may be tempted to use the extra available credit, which would ultimately be counterproductive.
Juggling several creditors can be a confusing mess that seems impossible to get out of. But, if you employ one (or more) of the methods above, you’ll be well on your way to paying off multiple credit cards sooner than you think. Then, you can apply your hard-earned money to other financial or life goals.
Tell Charlie: What do you think is the best way to pay off multiple credit cards?