4 good ways to pay off $5,000 in credit card debt
The high interest rates that credit cards carry is the number one reason consumers can benefit from paying off credit card debt as quickly as possible.
Need help paying off $5,000 in credit card debt? Keep reading to understand how credit card debt grows and four good ways to pay it off. (Shutterstock)
Carrying any credit card balance can be expensive. Because credit card balances are open-ended, you don’t have a definitive payoff date, which can make it challenging to create a clear debt repayment plan. In addition, the interest on that debt can add up, especially if you continue to let balances and new charges roll over from month to month. But this doesn’t mean that you can’t find a path forward, especially if you have a manageable amount to repay, like $5,000.
If you have $5,000 in credit card debt, here are four good strategies for paying off your balances.
A debt consolidation loan is one way to pay down high-interest credit card debt. Credible makes it easy to see your prequalified personal loan rates from various lenders, all in one place.
- Why you should pay off $5,000 in credit card debt fast
- 4 good ways to pay off $5,000 in credit card debt
- 4 bad ways to deal with credit card debt
- How to avoid credit card debt in the future
Why you should pay off $5,000 in credit card debt fast
Credit cards come with high interest rates, and this steep cost is the number one reason you can benefit from paying off credit card debt as quickly as possible.
It’s important to note that while $5,000 worth of credit card debt may not seem like a lot, it can add up. For example, if you have a $5,000 credit card balance with an 18% interest rate and you make a $100 monthly payment, it’ll take nearly eight years to pay off, and you’ll pay $4,311 in interest — nearly as much as your original balance. It’s easy to see how this debt could follow someone around for a long time and cause them financial stress if they don’t take steps to pay it off quickly.
Having debt of any kind can lead to feelings of stress, anxiety, and depression. Paying off your debt in full as fast as possible will not only save you money, but it can greatly benefit your mental health.
14 MILLION AMERICANS HAVE OVER $10K IN CREDIT CARD DEBT, SURVEY SAYS: 3 WAYS TO PAY IT DOWN QUICKLY
4 good ways to pay off $5,000 in credit card debt
There’s no one right way to pay off your credit card debt, but these four popular debt repayment methods are a good place to start.
The one that works best for you will depend on your unique financial situation and what method you find to be most motivating.
1. Debt snowball method
The debt snowball method requires making all required minimum payments on any sources of debt you have each month, but taking any extra money you can afford to spend and putting it toward the credit card with the lowest balance. That way, you can make quicker progress on paying off the smallest balance.
Once you pay it off, you can put that card’s minimum monthly payment and any extra funds toward paying off the card with the next-smallest balance, and so on. This strategy won’t save you the most on interest, but it can be motivating to see balances disappear more quickly.
Good for: Those who want to see quick wins to help them stay motivated to pay off their debt
2. Debt avalanche method
With the debt avalanche method, you prioritize paying off the credit card with the highest interest rate while making minimum payments on your other balances. Once you pay off that card, you’ll put the money you were paying toward the card with the next-highest interest rate, and so on, until you’ve paid down all your balances.
Since you’re tackling your highest-interest balances first, this method can help you save more on interest costs in the long run, but it may not be as motivating as the debt snowball strategy.
Good for: People who want to save more on interest costs
3. Consolidate with a debt consolidation loan
If you feel overwhelmed by having multiple sources of debt, you can combine them into one single source of debt by taking out a debt consolidation personal loan. When you apply for this new loan, if you can qualify for a better interest rate than you have on average across all your sources of debt, you can save money on interest. The downside here is you usually need a good credit score to qualify for a better interest rate.
Good for: People with good credit who want a clear end date for when their debt will be paid off
Visit Credible to compare personal loan rates from various lenders, without affecting your credit score.
4. Open a balance transfer card
Similar to a debt consolidation loan, you can use a balance transfer card to consolidate multiple sources of credit card debt. The key to making the most of a balance transfer card is to look for a card that’ll offer you a 0% introductory APR. During that period you won’t have to pay any interest, which can make it easier to pay off your debt faster.
But you’ll typically need good credit to qualify for a balance transfer card with a 0% APR offer. And if you’re still carrying a balance when the promotional period ends, you’ll start accruing interest at the card’s regular rate, which can be high.
Good for: People who can afford to pay off the balance in full before the introductory APR period ends
IS IT BETTER TO PAY OFF DEBT OR SAVE?
4 bad ways to deal with credit card debt
Some debt repayment methods are a lot less helpful — and in some cases, harmful — for getting out of credit card debt. You should avoid these four options if possible:
- Tapping home equity — It’s generally not a good idea to use a home equity loan to pay off your credit card debt, even though that loan may come with a lower interest rate. A home equity loan is secured by your home. If you fail to pay off that debt, you may lose your home.
- Taking out a 401(k) loan — Borrowing money from your 401(k) to pay off your credit card debt doesn’t just hurt your retirement savings progress. This move also results in paying interest to borrow your own money and experiencing automatic payroll deductions until you pay back the loan.
- Pursuing debt settlement — Debt settlement companies claim they can help you settle or renegotiate your debt to make it easier to repay. This isn’t something they can guarantee, and they often charge high fees.
- Filing for bankruptcy — Filing for bankruptcy may seem like a way to get a clean slate, but this process can severely damage your credit. Bankruptcy stays on your credit report for seven to 10 years and can make it hard to qualify for lending products, get good interest rates, and even rent an apartment.
How to avoid credit card debt in the future
Once you pay off $5,000 in credit card debt, it’s important to keep a clean slate. Here are some ways you can avoid credit card debt in the future:
- Understand how the debt occurred in the first place. To help avoid debt accumulating again, think back on where the debt came from. Did you overspend on unnecessary purchases? Is your rent too high? Did you lend too much money to friends? Try to get to the root of the problem so you can avoid these issues in the future.
- Make or rebalance your budget. Look at where you can make improvements in your budget to stop expenses from sneaking up on you again. Many free budget-management tools are available online to help you keep track of your spending.
- Build an emergency fund. One way to avoid taking on high-interest credit card debt in the future is to have an emergency fund ready and waiting to help when unexpected expenses are thrown your way, like car repairs or medical bills. Aim to save three to six months’ worth of living expenses in your emergency fund.
If you’re ready to apply for a personal loan as a first step toward meeting your debt-payoff goals, Credible lets you quickly and easily compare personal loan rates to find one that works for your unique situation.