Credit Card Debt Payoff Strategy: Effective Repayment Methods
2025-01-05
1. Dangers of Credit Card Debt
Credit card debt grows rapidly at high interest rates of 15-20% annually. Paying only minimum payment barely reduces principal, just keeps paying interest. Example: 5M KRW debt, 18% annual interest, paying only 100K/month takes ~7 years to payoff, total interest ~3.5M KRW. Growing debt leads to credit score decline, difficulty getting additional loans, and financial stress.
2. Debt Snowball Method
Pay off smallest debts first. โ List all debts by amount (smallest first). โก Pay minimum on all debts. โข Focus extra funds on smallest debt. โฃ When smallest is paid off, roll that amount to next debt. Pros: Quick wins motivate. Cons: Total interest may be higher than avalanche method.
3. Debt Avalanche Method
Pay off highest interest rate debts first. โ List all debts by interest rate (highest first). โก Pay minimum on all debts. โข Focus extra funds on highest rate debt. โฃ After payoff, move to next highest rate debt. Pros: Maximizes total interest savings. Cons: Slower visible progress may reduce motivation.
4. Debt Consolidation Loans
Refinance high-rate card debt with low-rate loans. โ Compare low-rate loan products (bank personal loans, lines of credit). โก Pay off card debt in lump sum. โข Repay consolidation loan principal and interest. Pros: Drastically reduced interest burden. Example: 18% โ 5% conversion saves 70% interest. Caution: Difficult approval with low credit score, avoid creating additional debt.
5. Income Increase and Expense Reduction
Increase repayment funds to speed up payoff. Income increase: โ Side jobs/part-time. โก Freelancing. โข Selling items (secondhand). โฃ Rental income. Expense reduction: โ Cut fixed costs (telecom, subscriptions). โก Reduce dining/entertainment. โข Prevent impulse buying. โฃ Budget planning. โค Use cash. Immediately apply saved amounts to debt repayment.
6. Relapse Prevention Habits
To avoid falling back into debt after payoff: โ Minimize credit card use (use debit cards). โก Spend only within budget. โข Build emergency fund (3-6 months income). โฃ Prevent impulse buying (24-hour rule). โค Regular financial checkups. โฅ Set financial goals (savings, investment). Healthy spending habits are most important.