A $2,000 balance may sound teeny-tiny to others drowning in debt, but my credit card balance was just the high-interest tip of the iceberg when I dropped out of school and finally faced my financial mess. And while I’ve still got student loans to worry on, I made my credit card balance disappear.
And I used some cool little tricks to help me pay it off.
Pay the Bill When You Get It
Credit card bills come by mail or by email, and they come about 20 days before they’re due. So you start calculating in your head, "How much can I drum up before the due date?"
Changing that train of thought could be the key to paying your debt off faster, and paying less interest along the way! Instead, think "How much can I put toward this bill right now?"
Here’s why it works:
- Interest on credit cards is calculated based on the average daily balance for the statement.* Paying at the beginning of the statement means your average balance will be lower for the next bill, meaning less interest to pay!
- You pretty much guarantee you won’t get hit with a late fee if you pay at the absolute first second instead of the last second. Late fees suck – this is a great way to completely avoid them.
- You save yourself from forgetting – this can be incredibly powerful for some of us! Instead of having to remember to pay your bill, it’s already done.
- Credit card companies can get sneaky, and move your due date to try and trip you up, and squeeze a late fee out of you. That won’t work on you if you’re paying the bill as soon as you get it!
*If you have double-cycle billing, interest is calculated based on the average daily balance for the last two months. Ew! That means even if you pay off your balance one month, you’ll still pay interest on it the next month – or two! Transfer your balance to a credit card that doesn’t have double-cycle billing. Quick!
If You Find More Money, Throw It At The Card
Many people don’t realize that you can make multiple payments toward your card each month. (Some cards charge a penalty for this, but most do not.) This can work to your advantage in several ways.
- Pay weekly instead of monthly. Make the minimum payment the first week after you get the bill, and then each week pay as much as you can.
- Or, pay as much as you can when you get the bill (ala the hint above), then pay more when you get it. Like, if you get an unexpected bonus, or find $20 in your coat. This process is called "snowflaking," and it’s great!
- Set up automatic payments from your checking account for the day you get your paycheck. Or the day after.
Track Your Progress
It may seem silly, but my insane spreadsheet motivated me more than anything else. It turned it into a game! "Hmm, if I can find $30 more to pay this month, I’ll pay off those plane tickets that I never should have bought in the first place!" Find a cool graphic online (there’s a ton – do a search for "countdown ticker"), keep a spreadsheet, or grab some paper and draw one of those red thermometer graphs!
Having some way to actually see the progress you’re making can truly make a difference. This requires that you know exactly how much you owe, so if you don’t, you really need to sit down and tally it up.
If you have more than one credit card that you owe money on, there are a few schools of thought on which one to pay off first. Followers of Dave Ramsey’s Baby Steps philosophy say to pay off whichever one has the smallest balance first. This will give you a physiological boost, and you’ll feel good enough to stick with it.
Or, there’s the school of thought that you should pay off whichever one has the higher interest rate, first. This makes more "math sense," as it will likely save you more money in the long run, and more money saved is more money to put toward the other cards.
Choose what works for you. Either way, list your cards (either by balance, smallest to largest; or by interest rate, highest to lowest), make the minimum payment on all of them, and throw all the extra money you can at the card on the top of the list. Once it’s paid off, you can start throwing the old minimum payment from the now-paid-off-card, as well as all that extra money you drum up each month, at card #2. And so on, it snowballs down until you’ve paid them all off.
If your credit score is good enough, you may be able to get a new credit card with an intro balance transfer rate of 0% for a period of time. Transfer your balance, and use the money you’re saving in interest to pay down the card faster. However, this only works if you follow some rules with it:
- Do not drum up new debt, either on the old card or the new one. This is rule #1 for a reason! If you go out on a spending spree with your now-empty old card, none of these tricks matter, because you’ve dug yourself into the same hole again.
- Watch out for "balance transfer fees." Usually they’re around 3% of the balance that you’re transferring. Try to get a card that doesn’t have this fee. If you can’t find one, do the math – make sure you’re saving more in interest than the fee, or else it’s not worth it.
- Make on-time payments! If you’re late even once, you’ll lose that intro rate, and you’ll be paying interest again.
- Try, as hard as you can, to pay off the whole thing before the intro rate expires. This is why I waited about a year to get a new card and transfer the balance – I wanted to make sure I could pay it off during the 12-month intro period. (And I did!)
Super ninja balance transfer hack: This tip is not for the faint of heart. It’s for those of us who are incredibly anal, and stay right on top of things. After you do the balance transfer, just pay the minimum payment on the new card. Then, take all the extra money you can sacrifice each month, and put it into a savings account. Then, less than one month before your intro rate expires, use the savings account money to pay off the card.
This will drum up some savings account interest to help you pay off the card. Not a lot of interest, especially with rates as low as they are now. But every little bit helps. This only works if you pay off the card before the rate expires, though! Even one day’s worth of credit card interest could wipe out all the money your savings account earned!
Want to see how some other people got out of credit card debt? Here are some of the stories that I really enjoyed reading:
JLP at All Financial Matters: How We Got Out of Credit Card Debt
How JD Roth at Get Rich Slowly began to see The Light at the End of the Tunnel
Trent at The Simple Dollar talks about how he made the debt snowball method work for him.