If you’re like many people, there’s a good chance that your New Year’s resolutions are now all but forgotten. But you can make positive life changes any time of the year. For example, right now, you can decide to wipe out your credit card debt once and for all. Here are three reasons to pay off your debt this year.
1. You’ll pay less interest.
Paying down your debt faster will save you big time in interest costs. Let’s do the math:
Say you owe $6,000 on a credit card at 18% interest with a minimum payment of $120 a month. If you make only the minimum payment, it will take you seven years, seven months to pay off your balance and you’ll pay $4,824 in interest.
But let’s say you increase your monthly payment to $200. You’ll save four years, three months and almost $3,000 in interest compared with the minimum payment plan.
You can also choose to do a balance transfer to a zero-interest credit card to save even more. Check out our roundup of credit cards without a balance transfer fee to avoid interest and fees. If you don’t qualify for these cards, look into other good balance transfer credit card offers out there with low fees.
» MORE: How to pay off debt
2. Your credit utilization will drop.
The second most important factor in your credit score, after on-time payments, is credit utilization, or the amount of your debt in relation to your credit limit. Experts recommend you keep your utilization below 30%, but the Nerds recommend playing it safe at 10% to 20%.
As you pay down your balance, your utilization will drop. You can get this same effect by increasing your limits, but this may trigger a “hard inquiry” from your issuer that can affect your credit score. Your score should increase as you improve this factor.
3. You’ll free up your monthly budget.
Your credit card payments eat up a certain portion of your monthly budget. Without that financial commitment, you could save or spend that extra cash however you want. Pay down your debt this year so you can spend your cash your way next year.
Bonus: You won’t have to set “pay off credit card debt” as a resolution next year.
If you don’t pay off your credit card debt this year, it’s likely to end up on your resolutions list again next year. If you don’t want to spend the next few years setting this same goal, while paying thousands in interest, you’re better off paying it down now. Go into next year with no credit card debt — or significantly less — by getting started today.
Bottom line: Start paying off your credit cards this year to reduce your interest charges, lower your credit utilization and free up room in your monthly budget. More than that, do it so you can stop setting “pay off my credit card debt” as an annual goal. Here’s to a debt-free (or close to debt-free) year!
Image via iStock.