4 great ways to pay off $5,000 in credit card debt
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Carrying any credit card balance can be costly. Because credit card balances are open-ended, you don’t have a fixed repayment date, which can make it difficult to create a clear debt repayment plan. Plus, interest on that debt can add up, especially if you keep letting balances and new charges roll 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 for settling your balances.
A debt consolidation loan is a way to pay off high interest credit card debt. Credible, it’s easy to view your prequalified personal loan rates from various lenders, all in one place.
Why You Should Pay Off $5,000 in Credit Card Debt Fast
Credit cards come with high interest rates, and this high cost is the main reason why you can benefit from them. pay off credit card debt as quickly as possible.
It’s important to note that while $5,000 in credit card debt may not seem like much, it can add 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 you almost eight years to pay off and you will pay 4,311 $ in interest, almost as much as your original balance. It’s easy to see how this debt could follow someone for a long time and cause them financial stress if they don’t take the necessary steps to pay it off quickly.
Having debts of all kinds can lead to feelings of stress, anxiety and depression. Paying off all of your debt as quickly as possible will not only allow you save you moneybut it can be very beneficial for your mental health.
14 MILLION AMERICANS HAVE OVER $10,000 IN CREDIT CARD DEBT, SURVEY SAYS: 3 WAYS TO PAY IT DOWN QUICKLY
4 great ways to pay off $5,000 in credit card debt
Which one is 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 involves making all required minimum payments on all sources of debt you have each month, but taking all the extra money you can afford to spend and putting it on the card credit with the lowest balance. This way, you can progress faster in paying off the smaller balance.
Once you’ve paid it off, you can use that card’s minimum monthly payment and any additional funds to pay off the card with the lowest balance, and so on. This strategy won’t save you the most on interest, but it can be motivating to see balances disappear faster.
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 off the credit card with the highest interest rate while making minimum payments on your other balances. Once you’ve paid off that card, you’ll put the money you paid on the card with the next highest interest rate, and so on, until you’ve paid off all of your balances.
Since you’re tackling your most valuable balances first, this method may help you save more on long-term interest charges, but it may not be as motivating as the bullshit strategy. debt snow.
Good for: People who want to save more on interest charges
3. Consolidate with a debt consolidation loan
If you feel overwhelmed by several sources of debt, you can consolidate them into a single source of debt by taking out a personal debt consolidation loan. When applying for that new loan, if you can get a better interest rate than you average on all your sources of debt, you can save money on interest. The downside here is that you generally need a good credit score to qualify for a better interest rate.
Good for: People with good credit who want a clear end date for paying off their debt
Visit Credible for compare personal loan rates from various lenders, without affecting your credit score.
4. Open a balance transfer card
Similar to a debt consolidation loan, you can 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 will offer you an introductory APR of 0%. During this period, you will not have to pay interest, which will allow you to pay off your debt more easily and quickly.
But you’ll usually need good credit to qualify for a balance transfer card with a 0% APR offer. And if you still have a balance at the end of the promotional period, you’ll start earning interest at the card’s regular rate, which can be high.
Good for: People who can afford to repay the full balance before the end of the introductory APR period
IS IT BETTER TO PAY OFF DEBT OR TO SAVE?
4 Wrong Ways to Manage Credit Card Debt
Some debt repayment methods are much less helpful — and in some cases, harmful — for getting out of credit card debt. You should avoid these four options if possible:
- Exploiting home equity — It’s generally not a good idea to use a home equity loan to pay off your credit card debt, even though the loan may have a lower interest rate. A home equity loan is secured by your home. If you don’t repay this debt, you risk losing 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 the progress of your retirement savings. This decision also results in the payment of interest for borrowing your own money and automatic payroll deductions until you repay the loan.
- Pursue debt settlement — Debt settlement companies claim that they can help you settle or renegotiate your debt to make it easier to pay off. This is not something they can guarantee, and they often charge high fees.
- Filing for bankruptcy — Filing for bankruptcy may seem like a way to wipe the slate clean, 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 obtain loan products, get good interest rates, and even rent an apartment.
Once you’ve paid off $5,000 in credit card debt, it’s important to wipe the slate clean. Here are some ways to avoid credit card debt in the future:
- Understand how the debt arose in the first place. To prevent debt from piling up again, think back to where the debt originated. Have you spent too much on unnecessary purchases? Is your rent too high? Have you lent too much money to friends? Try to get to the root of the problem in order to avoid these problems in the future.
- Make or rebalance your budget. Look at where you can make improvements to your budget to prevent spending from falling back on you. Many free budget management tools are available online to help you track your spending.
- Build an emergency fund. One way to avoid incurring high-interest credit card debt in the future is to have an emergency fund ready and ready to help you when unexpected expenses come your way, such as repairs. car or medical expenses. Try to save three to six months of living expenses in your emergency fund.
If you’re ready to apply for a personal loan as the first step toward meeting your debt repayment goals, Credible makes it quick and easy compare personal loan rates to find the right one for your unique situation.