1. Make a list of all of your debts and debtors
We need to get a total number for your debts. It won't be too painful. List the debtor in one column, the total debt in the second, the interest rate in a third column, and the time needed to pay off the debt in a fourth. You'll find all of that information on your statement.
|Card||Balance||Interest rate||Months to pay off*|
|Credit card No. 1||$15,000||18.75%||311 months|
|Credit card No. 2||$25,000||19.00%||351 months|
|Credit card No. 3||$10,000||15.50%||189 months|
*If these were your real debts and you just paid the minimum due (assuming 3.5%) every month, it would take 70.9 years to get rid of them, and you'd be paying thousands in interest.
Ouch. But there are much quicker and easier ways to dump that debt.
2. Know your options for paying off high-interest debts
With $50,000 in debt, there are a couple good options for consolidating and conquering it:
Balance-transfer credit cards
Today, more than two dozen 0% balance transfer credit cards are available, with introductory periods lasting 15 to 18 months.
A quick look at personal loan offers shows several offering 3-year terms with interest rates between 8% and 22%. With a 15% interest rate, your monthly payment would be around $1,700.
Home equity lines of credit
HELOCs have variable interest rates — meaning the rate can (and likely will) change over the course of the loan repayment, but current HELOC offers range from 2.5% to 5% for a $50,000 HELOC.
3. Make the best decision for your finances
With lenders offering low-rate ways to pay down debts quickly, you could be one application away from a better deal.
Stop paying interest on your credit card debt
Balance-transfer credit cards can be great if you know you can pay off the balance before the introductory periods ends — usually anywhere from a year to 18 months.
You'll get to lower your interest rate for that time period, but when it ends, watch out: The rate will likely jump to more than 15% after the intro.
Who should choose a balance transfer card?
Choosing this option can make sense if you know you'll be coming into excess cash pretty soon.
Pay less interest with a set (shorter) payoff schedule
Personal loans or debt consolidation loans are appealing in that you get cash pretty quickly, and the interest rates are lower than most credit cards. Plus you'll have a set payment amount with an end date.
For example: with a $50,000 personal loan, at 7% interest, you would be paying just $990 in monthly payments for five years (58 months).
Contrast that with any of the above credit cards, where it'll take up to approximately 29 years (351 months) to clear a single card.
Who should choose a personal loan?
Choosing this payoff option can be good because you can pay off your higher-interest debt and you know the finish line on the personal loan is a mere 5 years away, but you'll be on the hook to make your payments on time.
Low-interest option for homeowners
Have equity in your home? A HELOC, or home equity line of credit, can be a good low-interest option for paying off debt.
Who should choose a HELOC?
With interest rates around 4 percent, HELOCs can help you save hundreds in interest. The catch: These are only available for homeowners who have equity and can pay closing costs.
Don't let it take forever to pay off your credit card debt. Try one of these methods to dump that debt quickly!
What are your spending habits?
When you know where your money is going, you can make better financial decisions.
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