The Fastest Way To Pay Off Credit Card Debt: Depending on the situation, credit card debt is like a loaded gun in that it can either save your financial life or take it. So, it’s for this reason that any time you use your credit card, you need to find the fastest way to pay off your debt as soon as possible.
There are certain times when using a credit card make sense, like during emergencies or unexpected events such as car repairs or business expenses.
Here’s The Fastest Way To Pay Off Credit Card Debt
But if you’re not careful, then frequent credit card use can add up quickly and turn from a small spark to an out-of-control wildfire. This is because credit is easy to use so it can snowball into a large amount and becomes difficult to pay back.
To help you avoid that, I’m going to detail for you what credit card debt is, its impact on your credit report, the collection process, and a proven method to permanently get out of credit card debt.
What is credit card debt?
Credit card debt is “revolving term debt,” an open line of credit for your use at a certain interest rate.
It’s also available to you as long as you pay the minimum monthly payments, so after you pay the balance down you can keep using it up to your credit limit. These payments vary anywhere from 1 1/2% or higher of your total balance.
Your payment history is reported to the three big credit bureaus: Equifax, Experian, and Transunion. In addition it will affect your FICO score, a credit ranking designed to measure consumer lending risk.
The credit score ranks borrowers from 0 to 850, and the higher the FICO score, the more well-received your application will be by banks.
But, if you don’t pay it then there are serious consequences.
Consequences for Non-Payment
When you don’t make your scheduled payments, then the lender will start reporting late and missed payments to credit bureaus. And you’ll also have to pay late penalties and possibly have your interest rate raised to adjust for the new risk you present.
Once this happens, you’ll find that the quality of credit report begins to fall along with your FICO making it harder to qualify for financing at favorable terms or not qualify at all.
A lender will typically attempt to reach out to you if you miss your first payment to get your account current. Most lenders do not report you to the credit bureaus for being 30 days late on a payment, but they do reserve that right. But, if you’re more than 60 days late on your payment, then it’s guaranteed to be reported on your credit report.
After 90 days without making a payment, the bank will make a final push to contact you and warn you that unless you make your account current, then your debt will be charged-off and go to collections.
A charge-off occurs when a bank has made every attempt to get the client caught up, but the client fails to do so. To get the bad debt off its books, the bank will label a loan as a charge-off to separate it from the rest of its loan portfolio.
The reason banks do that is that banking is a heavily regulated industry by the federal government. If a bank has too much uncollected debt on its books, then a federal banking auditor could determine that the bank is at risk of insolvency and can’t service its depositors. If that happens, the bank may be prevented from making any more loans until they get rid of their bad debt.
When debt is charged off from the bank’s loan portfolio, it enters the “collections” phase and is reported to the credit bureaus as such. This makes you highly unattractive to lenders and unlikely to qualify for financing.
Banks will then sell their bad debt to a private collection agency at a discounted price of the charged off total. This is where you start receiving daily phone calls and several letters by the collection company, which can be a stressful, miserable experience.
The Courts and Jail
You can’t be jailed in criminal court for failing to pay your debt but you can be sued in civil court. The lender can sue you for your personal assets to satisfy the debt that is owed, or you can file for bankruptcy.
Bankruptcy, in a nutshell, is asking the courts to protect you from that scenario by wiping away all personal debt obligations to allow you to start over.
That said, filing for bankruptcy has serious consequences and you have to be prepared to have a giant “Chapter 7 Bankruptcy” stamped on your credit report. It will remain there for the next seven years, leaving you with very few prospects to qualify for financing during this time.
Debt Relief and Getting Help
To get help, consider going to a debt relief agency or getting a debt consolidation loan.
A debt relief agency can help you come up with a budget and act on your behalf to get more favorable terms with a lender. It’s not guaranteed but sometimes they are successful.
If your debt total is reduced, then be prepared for it to be reported as “settled” on your credit report. This is considered negative, since you didn’t fulfill your responsibilities as originally agreed, but it will get some short-term pressure off of you.
You can also consider consolidating your debts with a loan. This often lowers your overall payment, making it much easier to payoff your debt.
There are a lot of options for debt consolidation loans, such as borrowing from your 401k retirement account, taking out a home equity loan, or applying for a personal unsecured loan. If you go that route, just make sure that you don’t start charging your credit cards again or you’ll just end up back where you started.
The Snowball Method
Finally, the best option is simply to pay what you owe. Using “The Snowball Method,” one of the fastest ways to pay off all of your credit card debt, you can get back financial control and become debt-free.
- Make a list of all your credit cards. Then, next to each credit card write down your minimum monthly payment.
- Now, list the credit cards from lowest amount owed to highest amount owed.
- Next, write down how much extra you can afford to pay towards your debt each month.
- Apply the extra funds to the credit card that has the lowest balance in addition to its current minimum payment.
- Once that credit card is paid off, take that total payment and treat yourself to celebrate paying the card off.
- Afterwards, start applying that total payment on top of the next card’s minimum payment until it’s paid off.
- Keep repeating this until all credit cards and debts are paid off.
Commit to this plan and do not charge any more debt, otherwise you’ll just end up drowning in debt for the rest of your life.
But if you do commit to this plan, then you can take control of your debt, improve your financial life, and clean up your credit report for good.