Achieving a negative balance on credit card debt can be challenging. Because credit cards carry higher interest rates than other debt types, the minimum payment primarily pays off interest and not the principal. To get out of debt, individuals need to start paying off their credit card debt as soon as possible.
1. Send in an Extra Payment Each Month
One of the first things people can do is send in an extra payment each month. Because credit card interest is compounded on a daily basis, it is possible to pay lower interest costs by making a payment early. If someone gets a paycheck every two weeks, they can simply make a credit card payment each time they get paid. Instead of making 12 payments in a year, they will end up making 26 payments.
2. Focus on Paying a Single Debt at a Time
According to experts at SoFi Invest, a negative balance on credit card debt can only happen if someone has overpaid their credit card bill. Unfortunately, reaching this elusive status can be difficult. To achieve a low balance on credit card debt, it helps to focus on one credit card at a time.
Many people have debts spread out across multiple credit cards. Mentally, it is easier for people to make extra payments if they see one of the balances changing quickly. These extra payments can be made through the snowball method or by paying off high-interest debt first.
The high-interest technique is fairly straightforward. First, the individual must figure out which credit card has the highest interest rate. Then, they should put all of their extra payments on this card. By paying off high-interest cards first, individuals will pay less money overall.
Another technique is the snowball method. With this option, individuals start by paying off the smallest balance first. Once that card is paid, they can move on to the next largest balance. While the high-interest technique involves spending less money overall, the snowball method is better at motivating extra debt payments.
3. Get a Credit Card Consolidation Loan
One of the main reasons why it is so hard to pay off credit card debt is because credit cards have higher interest rates than other kinds of debt. No matter how much someone pays on their debt, a large portion of their payment will go toward interest costs. To speed up the payment process, individuals should consider credit card consolidation loans.
These loans are designed to pay off someone’s credit card debt completely. Then, all of the old balances are combined into a new loan and a single payment. Often, these personal loans have a much lower interest rate than credit card debt. Because of this, more of the individual’s monthly payment will go toward the principal balance.
4. Limit Spending
Ultimately, paying off debts is about an individual spending less than they earn. Other than getting a second job or a new income stream, individuals can pay off credit card debt by spending less money. Going out to restaurants less and eliminating subscriptions can help reduce someone’s monthly budget. Then, these savings can be applied to credit card debt.
While it is easy to get into debt, it is much harder to pay off credit cards and loans. This is especially true for high-interest debt. By making a few changes today, individuals can take the first step toward achieving their long-term financial goals.