Paying off high-interest debt like credit card bills requires patience, determination and a strategy that works for your situation.
CNBC Select breaks down five simple tools for getting out of debt quickly.
1. Consolidate your bills
Juggling multiple bills can be overwhelming, especially if they have different due dates.
Debt consolidation rolls multiple bills into one monthly payment, hopefully at a lower interest rate.
Balance transfer card: A balance transfer credit card with a 0% APR promo period is a simple way to consolidate credit card debt. For a small fee (usually 3% to 5% per balance), you can move your balance to a new card that won't accrue interest for months.
With the Wells Fargo Reflect® Card, qualifying transfers made within 120 days of account opening qualify for a 0% intro APR for 21 months, one of the longest zero-interest periods we've seen. After that, cards have variable APRs of 17.49%, 23.99%, or 28.24%. The balance transfer fee is 5% with a minimum of $5.
The Wells Fargo Reflect® Card can help you save on interest charges thanks to its extra generous intro-APR offer on purchases and qualifying balance transfers.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply Now to take advantage of this offer and learn more about product features, terms and conditions.
- 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 17.49%, 23.99%, or 28.24% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
- $0 annual fee.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
- Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.
Balance transfer fee
5%, min: $5
Foreign transaction fee
3%
Debt consolidation loan: If you have multiple bills or need more time to pay off your balances, a debt consolidation loan may be the answer. Unlike credit cards, personal loans have fixed interest rates and terms of up to five years. (You may be charged an origination fee to process your application.)
Thanks to its favorable terms and lenient eligibility requirements, Upstart is one of the best lenders for debt consolidation.
Upstart Personal Loans
Annual percentage rate (APR)
6.20% - 35.99%
Loan amounts
$1,000 to $75,000
Terms
36 and 60 months
Credit needed
300 (but may also accept applicants with no credit history)
Origination fee
0% to 12% of the target amount
Early payoff penalty
No
Late fee
5% of the last amount due or $15, whichever is greater
Avant works with borrowers with FICO scores as low as 580 and only charges an origination fee of up to 4.75%.
Avant Personal Loans
Annual Percentage Rate (APR)
9.95% to 35.99%
Loan purpose
Debt consolidation, major expenses, emergency costs, home improvements
Loan amounts
$2,000 to $35,000
Terms
24 to 60 months
Credit needed
Poor/Fair
Origination fee
Administration fee up to 9.99%
Early payoff penalty
None
Late fee
Up to $25 per late payment after 10-day grace period
Terms apply.
Click here to see if you prequalify for a personal loan offer.
2. Focus on high-interest debt
If you can't consolidate your debts, try to pay off high-interest bills first so you're not saddled with more interest payments.
With the "avalanche method," you continue making minimum payments on all your balances and allocate any extra funds to the account with the highest APR. Once you pay off that debt, you move to the next most expensive one.
Here's how that would look.
You have three credit cards:
- Card 1 has a $3,000 balance and a 25% APR.
- Card 2 has a $2,000 balance and a 22% APR.
- Card 3 has a $1,500 balance and a 19% APR.
Let's say you pay $50 per month on each and have an extra $150 to allocate. If you put it toward Card 1, which has the highest APR, you'll pay it off in 19 months. Now, you have an extra $200 to put toward Card 2, which you can pay off in seven months. Repeat the process with Card 3, paying $300 per month.
You'll clear all your balances in 29 months and pay $1,870 in total interest.
3. Start with the smallest balance
While the avalanche method may be the most cost-effective approach, it can test your patience and resolve. If you need motivation, the snowball method involves putting any extra funds toward the smallest balance. Seeing your first debt paid off should give you the confidence boost you need to keep going.
Let's use the same three credit cards from the example above. However, you'll start by focusing on Card 3 as it has the lowest balance. You'll pay it off in just nine months.
Next, Card 2 will take you another eight months to bring to a $0 balance. Then, you'll spend one more year putting the entire $300 toward paying down Card 1.
Overall, you'll finish paying off the debt in 30 months. You'll pay $2,079 in interest.
The snowball method can be more expensive, but it might provide the motivation you need to get debt-free.
4. Pay more than the minimum
If you can't pay off debt aggressively, at least submit more than the minimum payment.
Only putting the smallest amount toward high-interest debt means interest charges can eventually eclipse your initial balance.
If you have these credit cards and keep only making the $50 minimum per month.
- Card 1 has a $3,000 balance and a 25% APR.
- Card 2 has a $2,000 balance and a 22% APR.
- Card 3 has a $1,500 balance and a 19% APR.
It will take you 42 months (or nearly 4 years) to pay off Card 3, and you'll pay $550 in interest. Card 2 will take you 73 months (over six years and $1,647 in interest.
With just the minimum payment each month, you'll never pay off Card 1.
Figure out how much you need to pay to decrease your balances as quickly as you can, or at least to prevent them from growing further (Experian has a calculator that can help you crunch the numbers.)
5. Look into debt relief
If you're truly drowning in debt and don't see a way out, you may want to consider a debt relief company to negotiate with your creditors to lower the amount you owe.
You'll stop making payments, so your credit score will take a hit and your creditors could refuse to work with your representative.
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