We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms.
MoneyWatch: Managing Your Money
By Joshua Rodriguez
Edited By Matt Richardson, Angelica Leicht
/ CBS News
Around 82% of adult Americans have a credit card account according to the U.S. Government Accountability Office. Unfortunately, many of those who have credit cards carry balances from month to month and those balances can take years, if notdecades to pay off in some cases. That's because credit card minimum payments tend to be calculated as a small percentage of the balance, dropping each time the principal balance drops.
But what if you owe $5,000 in credit card debt? How long would it take you to pay off your debt with minimum payments and what can you do to speed up the process?
Take advantage of debt relief services to eliminate your credit card balances now.
How long will it take to pay off $5,000 in credit card debt?
Your balance, interest rate and the way your lender calculates your minimum payment all play a role in how long it will take you to pay off your credit card debt with minimum payments. With that said, the average credit card interest rate in the United States is just north of 24% currently. Considering a 24% interest rate, here's how long you will likely take to pay off $5,000 in credit card debt with minimum payments based on some common minimum payment calculations:
- 1% of the balance plus interest: You would pay off $5,000 in 285 months. That means it would take nearly 24 years to eliminate your $5,000 balance if you only make minimum payments. During that time, you'll pay a total of $9,332.25 in interest for a total payoff cost of $14,332.25.
- 2.5% of the balance (inclusive of interest): It would take 505 months to get rid of your $5,000 credit card balance making just minimum payments at 2.5% of your balance. That's over four decades of payments. As you make those payments, you'll pay a total of $18,218.87 in interest for a total payoff cost of $23,218.87 on just $5,000 in debt.
- 5% of the balance (inclusive of interest): You'll pay your $5,000 in credit card debt off in 119 months based on this payment calculation. That's one month shy of 10 years. Over that time, you'll pay $3,220.26 in interest for a total payoff cost of $8,220.26.
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt. There are a few things you can do to pay your debt off faster - potentially saving thousands of dollars in the process.
Take advantage of debt relief services to speed up your payoff timeline today.
How to pay your credit card debt off faster
If you're tired of credit card debt and ready to make a change, there are tools at your disposal. Here are some of the most common ways to pay your debt off quickly:
Enroll in a debt relief program
You don't have to fight your way out of debt alone.Debt relief programsoffer debt consolidation and debt settlement options that may be able to help you pay your credit cards off years faster while saving you thousands of dollars in interest. If you're struggling to make your minimum payments, and do it yourself payment methods don't offer enough help, consider reaching out to a debt relief company for assistance.
Take advantage of the debt avalanche
The debt avalanche is a payment method that has the potential to cut years out of your credit card debt payoff timeline. Here are the steps to using this payment method:
- Find a comfortable payment amount: Start by determining how much money you can afford to pay toward your debts each month. It's OK to add up your minimum payments and use the total as your overall payment amount but you'll generally pay your debts off faster if you make larger than minimum payments.
- Commit to that payment: As you pay down your principal balances, your minimum payments will fall, but the amount of money you pay should stay the same.
- Structure payments: Make minimum payments to all of your lenders other than the one with the highest interest rate. You should allocate all excess funds in your overall payment to your highest interest rate debt.
- Rinse and repeat: Once you pay off your highest interest debt, focus your efforts on your next highest interest debt until you've paid all of your credit cards off.
Take advantage of the debt snowball
The debt snowball method is similar to the debt avalanche method. The only difference is that instead of focusing your payment efforts on your highest interest rate, you'll focus on your highest balance debt first. Little wins as you pay off your smaller balances in the beginning will likely keep you motivated to continue on your path toward debt freedom.
The bottom line
If you make minimum payments on $5,000 in credit card debt, chances are that you'll be in debt for a decade or longer. Now is the time to take action. Use one of the methods above to reduce your time in debt and the amount of interest you pay to get out of it.
