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Carrying a balance on your credit cards can put a strain on your finances, and if you’re already on a budget, it can be difficult to dig yourself out of debt.
Because every situation is different, there’s no silver bullet that works for everyone. However, there are some general guidelines for how to pay off credit card debt with low income or a tight budget. Here are some to consider.
Look for opportunities to increase income and cut costs
While it’s not always feasible, take a look at your current financial situation and determine whether there are ways you can increase your income or reduce your expenses. Potential options for earning more money include:
As you review your expenses, focus on your discretionary spending to see if you can cut back on things like streaming subscriptions and eating out. You can also evaluate your necessary expenses, like groceries, to determine if you can cut back on more expensive items.
Make a budget
If your financial situation is tight, you may already be tracking every dollar you spend. But if not, gather information about your income and expenses over the past few months, then create spending goals for the upcoming month.
Also, create a list of each of your credit card accounts, including balances, interest rates, and monthly payments.
Depending on how much you have to work with, you may be able to budget some extra payments toward your debt. Then, track your spending throughout the month to make sure you stay in line with your spending goals. If you overspend in one area or have an unexpected expense, make adjustments as you go.
Regardless of which approach you take to paying down your debt, consider putting your credit card spending on hold. While it may be tempting to keep using your cards to earn rewards, it can make it feel like you’re taking two steps forward and one step back.
The best ways to pay off credit card debt
While there is no single best way to pay off credit card debt, the following approaches can help you be more effective with your approach to your balances.
Balance transfer credit card
Balance transfer credit cards offer special promotions to new cardholders, allowing you to pay off your debt over a period of 12 to 21 months with no interest charges.
Depending on how much debt you have, you may be able to pay off a large chunk or even all of your balances without paying another dime in interest. Even if you can’t afford to pay off the new balance in full, you can still save hundreds on interest charges.
Keep in mind, though, that these cards typically require good or excellent credit — meaning a credit score of 670 or higher. They also charge an upfront balance transfer fee of 3% to 5%, though that can be worth the interest savings.
Finally, credit card issuers don’t give you a credit limit until you’re approved, so there’s no guarantee that you’ll get a high enough limit to make it worth your while.
If you’re considering a balance transfer, here are some of the best options currently available:
Debt consolidation loan
You may also consider a debt consolidation loan, which is typically an unsecured personal loan. Unlike credit cards, personal loans offer a fixed repayment term — typically ranging from one to seven years — which can come in handy if you’ve had trouble sticking to a payoff plan.
What’s more, personal loans tend to charge lower interest rates than credit cards on average, though you may have a hard time qualifying for those rates if you don’t have near-perfect credit.
Additionally, some lenders charge an upfront origination fee of up to 12% of your loan amount, forcing you to borrow more to cover all your debt. And depending on the terms of your loan, the monthly payment may not fit in your budget.
If you think a debt consolidation loan might help, take a look at the best personal loans and get prequalified with multiple lenders so you can compare rate quotes to determine if it’s the right move.
Accelerated debt payoff methods
If you have multiple balances and your credit isn’t in great shape, or you don’t want to apply for more credit, consider the debt snowball or avalanche approach.
With the debt snowball method, you’ll start by making the minimum payment on all of your cards. If you have extra money you can put toward your debt each month, add that to the minimum payment on the card with the lowest balance.
Once that card’s paid off, take the full amount you were paying and add it to the minimum payment on your next-lowest balance. You’ll keep doing this until each balance is paid in full, creating a snowball effect that could shave years and hundreds or even thousands of dollars in interest. It can be especially beneficial if paying off small balances can help you maintain momentum.
The debt avalanche method works similarly to the snowball approach, but instead of focusing on your smallest balances, you target the accounts with the highest interest rates. This strategy won’t necessarily give you wins early on, especially if your highest balances also carry your highest interest rates. But if you’re disciplined, it can help you save more on interest charges.
Consult with a credit counselor
If your situation is dire and you’re worried about missing payments, or you’ve already fallen behind, consult with a credit counselor from a nonprofit credit counseling agency.
A qualified credit counselor can provide you with free personalized guidance based on your situation and may also recommend what’s called a debt management plan (DMP). A DMP typically takes three to five years to complete, during which you’ll make payments to the credit counseling agency. In addition to paying your creditors with the funds you provide, the agency may also negotiate lower interest rates and monthly payments.
That said, there are modest setup and monthly fees associated with DMPs, and you may be required to close your credit card accounts, which can damage your credit until you can pay down your debt. However, this option can save you from more drastic (and credit-damaging) options like debt settlement and bankruptcy.
You can find a good credit counselor through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Create a plan and get started
Once you’ve taken stock of your situation and considered the different options available to you, make a decision on which path is the best for you. Then, get started with your plan.
Over time, continue to reassess your progress and whether your approach is working. Make adjustments as necessary to account for unexpected expenses and other variables that can make it difficult to stick to your original plan.
Whatever you do, though, avoid getting complacent. Paying down credit card debt can take several months or even years, and it’s natural to feel discouraged or impatient at times during the process. But if you give yourself some flexibility — and grace anytime you stray from your goal — it can make it easier to avoid abandoning things altogether.
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