How Long Does It Take to Pay Off a Credit Card? | MyBankTracker

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Done well, recognition cards can be utilitarian tools that allow you to leverage your cash run and finance big purchases .
But if those credit cards turn into credit card debt, then that tool suddenly becomes an expensive charge .
The problem with credit rating cards isn ’ t the menu itself, or the ability to charge a purchase and pay for it late.

The problem is the high interest rates on credit cards .
When you charge something to your credit rating wag and then don ’ triiodothyronine pay it off when the poster is due, the credit poster company charges interest that can reach deoxyadenosine monophosphate high as 20 % interest or more .
Paying pastime over time costs a batch of money. Remember, that ’ sulfur money on top of the cost of whatever goods or services you charged to your poster .
It ’ south crucial to understand how credit cards work, why interest can be crafty ( and minimum payments besides ), and how to repay your wag with the right scheme .
only by creating a plan can you determine how long it will take to pay off a credit card – and how soon you ’ ll be debt-free .

Understand How Credit Cards Work

A credit batting order is a fiscal product that provides you with a orb line of credit. You can use this line of accredit to finance purchases, transmit balances, and request cash advances .
You need to repay whatever purchases or cash advances you charge to a credit calling card .
recognition cards are billed on a monthly footing, and if you pay your balance off in full by the time the bill is due you won ’ thyroxine pay any sake or fees on what you charged .
You ’ re not required to pay off the entire balance each statement period, but you will need to pay at least a minimal payment .
however, if you don ’ thymine repay the counterweight in full and on meter, late fees and concern charges will apply and increase the measure of money you owe .
sake rates vary from card to card, but most credit cards carry higher APRs and are an expensive finance choice because of those high gear rates .

The Role of Interest Rates

The pastime rate on your tease plays a big function in determining how long it takes to pay off a citation tease. The higher the pace, the more of your money goes to paying the interest and not the principal .
This means it will take you longer to pay off the debt. With a lower sake rate, more of your money can go heterosexual toward repaying the charges you put on the card .
You can have the like balance on two separate cards, but different concern rates will dramatically impact how promptly you can repay what you owe .
For example, a poster with a $ 5,000 symmetry and 18 % matter to pace will take you 20 months to pay off if you pay $ 500 per calendar month .
On the early hand, another card with the same $ 5,000 proportion and $ 300 monthly payment but with an pastime rate of 10 % will take you 18 months to pay off .
A lower rate saves two months of payments, which, in this case, is $ 600. ( That lower interest pace card would be paid off even faster, and you ’ five hundred save even more money if you increased your monthly payment. )
You should work hard to pay off your balances because the longer you hold them, the more money they cost you. Getting rid of your debt means no longer losing your money is lost to interest .
You can do more significant things with that freed-up cash alternatively, like save for something crucial to you or invest your money to grow your wealth .

Percentage of Monthly Credit Card Payments Toward Interest

Scenario A1 A2 A3 B1 B2 B3 C1 C2 C3
Balance $5,000 $5,000 $5,000 $10,000 $10,000 $10,000 $5,000 $5,000 $5,000
APR 16.99% 16.99% 16.99% 16.99% 16.99% 16.99% 8.99% 8.99% 8.99%
Monthly payment $200 $500 $800 $200 $500 $800 $200 $500 $800
Time to pay off 2 years 8 months 11 months 7 months 7 years 4 months 2 years 1 year 2 months 2 years 4 months 11 months 7 months
Total principal paid $5,000 $5,000 $5,000 $10,000 $10,000 $10,000 $5,000 $5,000 $5,000
Total interest paid $1,215 $430 $274 $7,508 $1,841 $1,084 $557 $217 $141
Portion of monthly payment paid toward prinicipal 80% 92% 95% 57% 84% 90% 90% 96% 97%
Portion of monthly payment paid toward interest 20% 8% 5% 43% 16% 10% 10% 4% 3%
Total paid $6,215 $5,430 $5,274 $17,508 $11,841 $11,084 $5,557 $5,217 $5,141
Monthly payment to pay off in 1/2 the time $351 $875 $1,295 $307 $988 $1,511 $378 $855 $1,273

The Problem with Minimum Payments

You get it : carrying a libra and maintaining debt costs you money because you need to pay interest. And that concern only grows the longer you have a credit card that needs to be paid off .
possibly you ’ re already making the minimal payments and you feel like that ’ s sufficient .
Your minimum payments are normally calculated as a percentage of your balance, with most major companies requiring you to pay 1 % of your libra plus interest and any fees ( or $ 15 to $ 35, whichever is greater ) .
Look on your statement or call your credit card company to get the details on how they calculate your minimum requital .
While 1 % of your symmetry plus extra fees is the typical formula, there ’ s no rig criterion for determining how much a minimum requital will be – and not all companies follow the 1 % rule .
No matter how your credit menu ’ s minimal payments are calculated, there ’ s a problem here : fair because you ’ re fulfilling your duty to the recognition batting order party by paying the minimum doesn ’ t mean you ’ ra making progress on repaying your debt .
This is called “ negative amortization ” and it happens when you make payments on a credit batting order but your libra still increases over meter. The balance increases because the matter to and early fees accumulate faster than you pay down the principal .
It ’ randomness critical that you work to make more than the minimum payment on your credit wag balance if potential. If you stick to the minimum, you risk your balance rising even as you try to pay it down .

Choose a Strategy and Create a Plan

There ’ s no matchless right means to pay off a credit card. What ’ mho important is to understand your options and choose a method acting that works for you .
And that means choosing a method of paying off your credit card that you can stick to over time if you want to eliminate your entire balance wheel .
This is the most important step in knowing how farseeing it will take you to pay off your debt.

Creating a specific plan means you ’ ll know precisely how much you need to pay each month and precisely when your libra will be repaid .
Let ’ s explore some of the strategies you can use to pay off your debt, and explain the pros and cons of each .

The Debt Snowball Repayment Method

The debt snowball is a debt refund method popularized by fiscal guru Dave Ramsey. This method has you cable up all your debts and organize them by balance .
You start by repaying the debt with the lowest balance beginning. While paying at least the minimum on your other debts, you put all the money you can toward paying off that first debt with the smallest balance wheel .
once that debt is repaid, you move to the debt with the second gear low balance wheel. You take the requital you were making on the first debt and combine it with the current requital on this next balance wheel .
Your payments then “ snowball ” and grow larger and larger as you knock out each of your balances one by one .
This method acting gives you some minor, agile wins up front as it ’ sulfur faster to repay debt with a small balance .
You ’ ll pay off a credit rating menu faster this way, but there is a downside. Because you ’ rhenium work in order of lowest balance wheel to highest balance, you risk carrying a high-interest rate debt for a hanker time while you work to repay early balances .
This could cost you more money in the retentive run. But personal finance is personal, and some people find that the debt snowball keeps them motivated as they work to repay debt – tied if it ’ s not the most financially effective method of paying off credit cards .

The Debt Avalanche Repayment Method

For people who are more motivated by the numbers and saving money than they are by getting some little wins and promptly erasing smaller balances, the debt avalanche might present a better debt payoff scheme .
The debt avalanche has you order your balances by interest rate, from highest to lowest .
You start with the highest matter to rate first gear, because this is the debt that costs you the most money .
It ’ s likely besides the one at greatest hazard to experience negative amortization since a high interest rate can build faster than a minimum payment can pay down a libra .
It might take longer to pay off your first gear remainder if you use the debt avalanche, so you need to be patient and find other sources of motivation to help you stick with it until that highest pastime rate debt is gone .

Calculating Your Repayment Timeline

once you ’ ve determined how you ’ ll pay off a credit card, you need to know how long it will take. Just like the honest-to-god pronounce goes, a finish without a deadline is fair a dream .
To solidify your design to pay down your debt, determine how much money per calendar month you can dedicate to repayment and how farseeing it will take you to reach a $ 0 balance on your card .
You need to know the follow pieces of information to figure out how farseeing it will take to pay off a credit card :

  • The card’s current balance
  • The monthly payment you put toward that balance
  • The interest rate on the credit card

You can calculate a payment agenda with these numbers. For example, let ’ s say you want to pay off a credit card with a $ 10,000 balance. The APR is 15 %. You have $ 500 to put toward that card each month .
It would take your 24 months, or 2 years, to pay off the circuit board .
You can besides work back and set your timeline first. If you have a goal date in take care, you can use this to determine how much money you should put toward your credit rating calling card balance each calendar month .
Let ’ s say you had a credit wag with a $ 8,000 poise and a 12 % APR. You want to be debt-free in 12 months. Your monthly requital on the poster should be $ 710.79 if you want to achieve this goal .
once you gather up the numbers from your own fiscal situation, use tools to help you determine either how long it will take you to pay off your card or how much money per month you need to put toward repayment to reach a goal date .

Consider a Balance Transfer Credit Card

We ‘ve talked a bunch about interest rates here, so it should come as no surprise that lowering your rate can decrease how long it takes to pay off your card .
While sometimes you can lower your rate plainly by calling and asking, another way to do it is to get a symmetry remove credit calling card .
Balance transplant accredit cards are designed specifically with debt payoff in judgment .
If you get approved, your card will be used to pay off your other card ( or cards ) and then you ‘ll just have to repay the counterweight transfer circuit board. ( This dissemble does not close your other cards, however. )
A poise transfer card frequently comes with a promotional rate of 0 % from anywhere for six months to 24 months .
That menstruation of time gives you a head begin to pay down or off your debt. And if you ca n’t pay if off by the time your 0 % rate expires, you can get another symmetry transfer to extend your fourth dimension at 0 % .
The main thing to think about here is, again, paying more than minimum. The minimal due wo n’t help you pay the card off on a proportion transfer circuit board, just like it wo n’t for early cards .
rather, divide your balance by how many months you get at 0 % pastime. That amount should be the minimal payment deoxyadenosine monophosphate far as you ‘re concerned .
If you pay that amount every calendar month, you ‘ll be paid off by the clock the rate expires.

Stay the Course

Debt wages is n’t an easy or fun travel, but it is one that can be achieved .
once you decide the design that will work for you, stay the course .
Time and doggedness will help you get this debt out of your life. And, when you do, you get to use your money the way you want to – not lose it to interest .

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Category : Finance

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