How To Pay Off $20K in Debt
11 MIN READ
Published December 26, 2023 | Updated December 26, 2023
How To Pay Off $20K in Debt
Carrying $20k or more in outstanding credit card debt can quickly drain your financial resources and strain your mental health. As credit card debt passes the $1 trillion mark, it’s no wonder more American consumers find themselves stuck with mounting debts. But with a clear plan and attainable goals, there is hope.
Read on so you can gain the know-how for successfully making debt payments on $20k in credit card debt.
What Are the Benefits of Paying Off Debt?
There really aren’t any downsides to paying off your debts. Eliminating large amounts of debt frees up funds for other expenses and savings. It can also relieve the anxiety and stress of seeing unpaid balances on high-interest credit cards each month that never seem to go down.
Once you pay off $10,000 or more in credit card debt, you’ll also save money by wiping out the interest charges and fees that come with high balances. If you only made a minimum payment each month, the total interest accrued could easily surpass your debt’s original balance.
Ways To Get Started Paying Off $20K in Debt
The average American household carries $10,263 in credit card debt, with many owing far greater balances. Taking that first step toward making a plan to pay off $20k in debt can be the key to restoring your financial freedom. Here are the top strategies you can use to start paying off high credit card balances:
Switch To Cash or a Debit Card
Many of the clients who come to us at TurboDebt need help overcoming huge amounts of credit card debt. One of the best things you can do to eradicate that debt quickly is to stop using credit cards to avoid adding more to your balances.
Instead, plan carefully and carry cash or activate a debit card so you’ll only use the money you already have in your account. Save one or two credit cards for absolute emergencies, but otherwise, you may want to close other accounts to avoid spending on credit.
Set Achievable Goals
Get motivated to start paying off your debt quickly by writing down clear and measurable goals about what you want to achieve. Use these goals to assess your progress. For example, you could set a goal to pay off $5,000 in three months by cutting all unnecessary credit card spending and earning overtime pay at work. After the first month, check your balance to find out if you’re on track.
Finding a mentor to hold you accountable to your plan each month may help you stick to your goals. Ask a trusted connection or enlist the help of a credit counselor. Check in with your accountability partner regularly and honestly share your progress. Discuss any challenges you’re facing in your journey to pay off debts.
Review Your Credit Report
You’re entitled to view a free credit report from all major reporting agencies at least once a year. Start by looking at your credit scores to see where you fall. The most widely accepted personal creditworthiness assessment and rating system, the FICO score, rates consumers based on factors like payment history, credit utilization rate, and the number of accounts you keep active.
Once you’ve paid off your outstanding debt, take another look. It’s likely your score will improve after you consistently make payments and eliminate unpaid balances.
Fastest Ways To Pay Off $20K in Credit Card Debt
Take a look at these rapid solutions for paying off $20,000 in credit card debt:
Use a Debt Management Plan
If you’re ready to commit to making consistent payments, a debt management plan helps you organize and administer your payoff plan each month. Typically set up through a nonprofit credit counseling agency, a debt management plan allows you to make monthly payments to your creditors through the organization.
When you enroll in a plan, you’ll also get the benefit of working with a certified credit counselor who can advocate for you and work with your creditors to waive late fees and maybe even lower your interest rates.
Consider Debt Consolidation Loans
Debt consolidation loans offer one of the quickest ways to pay off $20k in credit card debt, provided you qualify for the loan from a lending institution. Once you take out a debt consolidation loan, you can use the money to pay off all of your current debts in exchange for a single monthly payment to your new lender.
In fact, consumers take out personal loans for debt consolidation more than any other purpose. However, interest rates for personal loans keep climbing, making debt consolidation a challenging financial option. If you don’t get the loan at a relatively low interest rate, you may wind up paying more money in interest over time than if you’d just paid off your other debts as you have been. Consumers with good credit scores are more likely to benefit if they choose to consolidate debts because they’re more likely to secure a personal loan with a relatively low interest rate.
Complete a Debt Settlement
Reducing the total amount you owe through a debt settlement is another effective choice for getting out of $20k in credit card debt. Working with an experienced debt settlement company like TurboDebt is often easier than trying to negotiate with your creditors on your own. Our expert team works with thousands of clients across the United States, saving them up to 50% of their total debt before fees.
Bankruptcy can be a tool to eliminate high amounts of credit card debt, but it comes with serious long-term consequences. You may be forced to sell off assets to pay back creditors. You can also expect to carry the negative after-effects of your bankruptcy on your credit history for up to 10 years, making it harder for you to open new loans or credit card accounts.
Other Strategies To Pay Off $20K in Debt Fast
Here are more options to quickly eliminate $20k in debt:
DIY: Debt Snowball/Avalanche
You can always get started with debt relief on your own by using either the debt snowball or avalanche method. In the debt snowball method, consumers pay off their smaller debts first to build confidence through the positive results of their payoff plan.
Using this method, consumers can also free up funds to pay down their larger debt amounts. For example, if you had three cards with outstanding balances, you’d pick the one with the smallest balance and pay that one off before moving on to the next biggest account.
The debt avalanche method reverses the process, paying off the largest balances first, then finishing up with the smallest balances. You’ll likely need to plan ahead and dedicate funds to make such a big payoff if you choose the avalanche method.
Reduce Your Interest Rates
Another way to make paying off $20k more manageable is to reduce the high interest rates you pay on each account. Consider working with a credit counselor who can negotiate with credit card companies on your behalf to lower interest rates. Once you owe less in interest each month, it’s easier to pay down the principal on your debt. This is because, for each dollar you put toward your debt, more can go into paying down the debt’s principal instead of interest.
Create a Budget
Budgeting is an effective way to manage your debt and keep track of your finances from month to month. When you clearly identify all your expenses, you’re likely to find areas where you can cut back on your spending or eliminate purchases altogether. Any extra money you save by reducing your discretionary expenses can be used toward reducing your credit card debts.
Consider cutting subscriptions, lowering food costs by eating out less, and lessening insurance costs by shopping for the best rates. Look for cards that give cash back or other perks and manage your credit limit appropriately by not putting additional charges on your card while you’re paying down your balance.
Strategies like these help you to save more of your income when you spend your money wisely. You may also want to consider setting up an emergency fund with the extra money to cover any unexpected expenses that may come up along the way.
Pay Your Bills on Time
When you consistently pay bills on time, your creditors and credit history reflect this positive habit. Making on-time payments proves you’re a responsible borrower and may convince lenders you’re worth the risk when you try to secure new credit, such as auto loans or student loans, in the future.
Brad Reichert, debt expert and founder and managing director of Reichert Asset Management LLC, weighs in on why this simple strategy is so valuable to consumers. “It’s important to note that if you make just one single late payment on your credit card account, many banks and credit card companies will not only charge your account a late fee of $15 to $35, they will very likely raise the standard interest rate for any new charges you make on your account to their “default interest rate,” Reichert explains.
Reichert says this default interest rate is typically a variable APR that starts at 29.99% or higher, making it hard for consumers who fall behind on payments. “However, because of the provisions afforded to credit card holders under the Consumer Financial Protection Act of 2010, banks and credit card companies cannot unilaterally raise the interest rate on your entire credit card balance to the “default interest rate,” Reichert adds.
Borrow From Your Retirement Plan
If paying off your $20k credit card debt right away can significantly improve your financial situation, it may be worth it to take a loan from your own retirement plan. Before you choose this solution, though, it’s important to understand the tax implications and the rules your employer-sponsored retirement plan may have when it comes to loans and other withdrawals.
Withdrawing funds early from a 401(k) or similar retirement plan while you’re under the age of 59-½ means you’ll pay a 10% penalty on top of any income taxes that may be due on the amount of the withdrawal.
Penalties occur because the money you take out of any pre-tax 401(k) or similar retirement plan counts as taxable ordinary income. Choose this option with care since the taxes and 10% penalty make it a high price to pay for using this source of funds, even if it means quickly clearing your debt with one big lump-sum withdrawal.
The Bottom Line on Paying Off $20,000 in Credit Card Debt
With 65% of consumers carrying a balance on their cards from month to month, paying off $20,000 in credit card debt can seem like an impossible task. However, by creating a plan and committing to monthly payments, you can do it. Partnering with a debt relief organization like TurboDebt is one effective way to focus on debt repayment and get help negotiating with creditors to reduce what you owe.
Don’t let credit card debt overwhelm your life. Restoring your financial freedom just takes a little time and perseverance. Contact our team today to start a free consultation about our debt relief options.