Carrying a credit card balance can be stressful. Even if you’re making regular monthly payments, you may feel like you’re barely making a dent. If that sounds like you, we’re here to help adjust your perspective with some helpful methods and a simple calculator to help you strategize paying off your debt more quickly.
How to use our credit card payoff calculator
Gather your total balance, your APR (annual percentage rate) and how much you pay toward the balance each month. Then, let our credit card payoff calculator do the math — the result will tell you how long it will take to pay off the total balance you entered.
Read more: How to use Ally Bank’s buckets to help pay off debt
Understanding the basics of credit card debt
When you use a credit card, you’re essentially using a loan from the card issuer, which means you’ll be charged interest. The interest rate on your credit card is the percentage you pay when you carry a past-due balance. However, if you pay off your credit card balance by the due date each month, you generally won’t be charged any interest.
The interest rate and APR on your credit card have a big impact on how long it will take to pay off your debt. The higher the interest rate and APR, the larger the amount you owe becomes.
Note: APR is the interest rate advertised plus any fees, so APR gives a more complete picture of how much it costs to borrow money using a credit card.
Unlike other types of debt — like a mortgage or student loan debt — credit card debt is considered riskier thanks to its comparatively high interest rates and the fact that it doesn’t contribute to assets that can increase in value over time (like a home or education).
Read more: Use our debt payoff calculator to plan a paydown strategy
Strategies for paying off credit card debt
Once you know where you’re starting, you can look at a few strategies to pay down your debt. If you have the money, the easiest and quickest way is to pay the entire balance in one payment. Most likely, though, you’ll need to pay over time, so you’ll want to decide on a strategy.
Tip: Put aside money each month to go toward paying off your credit card debt by setting up a debt paydown bucket in an Ally Bank Spending Account, our checking account for modern money management.
Credit card debt is considered riskier thanks to its comparatively high interest rates and the fact that it doesn’t contribute to assets that can increase in value over time.
Snowball method
Particularly if you have more than one source of debt, you might consider the snowball method. With this approach, you pay off your smallest debt first, then move to the next smallest and so on.
Avalanche method
Another option is the avalanche method. With this approach, you make the most significant payments to the debt with the highest interest rate. It takes longer than the snowball approach, but you pay less interest over time.
Credit card consolidation
If you have multiple credit cards, consolidating your debt may be advantageous. With a balance-transfer credit card, you can transfer your debt to a new card with a lower interest rate. But keep in mind you may incur transfer fees. Shop around to see if credit card consolidation could help you pay less and make it to the debt finish line faster.
How credit card debt impacts your credit score
Carrying a balance on your credit card is stressful and can also impact your credit score. This three-digit number, which ranges from 300 to 850, helps lenders determine how likely you are to repay debts. It can affect whether you qualify for a loan, the size of the loan you are eligible for and the APR on that loan.
The primary way credit card debt impacts your credit score is through your credit utilization ratio. This number refers to how much available credit you’re using at any given time. A lower credit utilization rate will have a positive impact on your score. An ideal credit utilization ratio varies by lender, but in general, you should aim for 30% or lower.
Find the right payoff schedule for you
Paying off your credit card can feel like a daunting task. But figuring out how long it will take you to reach that goal can help you stay motivated. After that, you can make a paydown plan and put it in action.
