When entering into credit card debt, most consumers never think about the time it takes to pay back that debt at minimum monthly payments. On average, it can take more than 20 years to pay back $4,000 to $5,000 in credit card debt with compounding interest rates. In order to pay down credit card debt, consumers need to pay more than the minimum monthly payment, but how much more?

Lowering Credit Card Debt by Increasing Payment Amount

With a credit card balance of $5,000 at 18% interest rate and a monthly minimum payment of $125, consumers can expect to pay back more than $11,000 over more than 20 years time. Doubling the payment to $250 a month reduces the total paid to just under $$6,000, but it still requires more than two years to pay back the credit card debt. In order to pay off the debt in one year, monthly payments would have to be $500 or more.

Paying Down Credit Card Debt With New Debt

In some cases, entering into a new loan may help repay credit card debt more quickly. Loan interest is amortized differently based on the type of loan. Auto loans, for instance, figure total interest into the monthly loan payment. Interest is not compounded monthly and added back into the total balance owed, unlike credit cards. If auto loan payments are made on-time, or ahead of time, final balances are constant or lower than expected. Personal loans work in this same way, so paying off credit card debt with a personal loan or consolidation loan may be an option for consumers with high debt and interest, but with only enough income to pay the minimum monthly amount.

Choosing Debt Transactions Wisely and Paying Off Within One Month

Several major credit card companies offer a grace period when no interest is charged for a credit card balance if the total balance is paid in full. Consumers who use credit card debt as a means of building credit often repay debts before the grace period expires. This option is best for consumers who have never entered into substantial credit card debt and wish to make the best financial choices for today and future financial stability.