With interest rates that can reach up to 25% (or more), credit card debt can be a huge weight on more than just your financial life. And if you want to pay off credit card debt, it can feel like you’re facing a massive brick wall with no way over it.
No one wants credit card debt. But, sometimes people find themselves in debt because of major financial setbacks, because of complicated relationships with money, and because they aren’t earning enough to pay everyday bills. It’s a vicious cycle that’s hard to break free from…
In the U.S., consumer debt has reached over $1 trillion.
43% of those with credit card debt have to carry a balance over each month.
On average, millennials carry $4,315 of credit card debt, while Gen Xers carry $7,750.
If you fall into those statistics and want to learn how to pay off credit card debt, I have real, actionable advice for you, including:
- How to assess the damage
- Finding a payment plan that works for you
- How to work with your creditors
- Information on debt consolidation
- What to do when you’re out of options
- 7 tips for paying off your credit card debt
How to pay off your credit card debt
How much debt do you have?
Knowing your total amount of credit card debt, while tough to face, is a necessary part of moving forward. You’ve got to see how big that mountain is before you make a plan to scale it.
To figure out your total amount of debt, pull all of your most recent credit card statements. Take note of your total balance, interest rates, and the dates your payments are due. All of that information is going to help you actually figure out how to pay off your credit card debt.
You can also get a free credit report from AnnualCreditReport.com (this is the site the FTC recommends). You can get that report once every 12 months. If anything doesn’t look right, like there cards you didn’t open, contact the credit reporting company to file a dispute.
The free budgeting app Mint gives you a free credit report from each of the three major reporting agencies. They are spaced out to come every few months, which can help you keep an eye on your credit as you work on paying off your debt.
Pick a pay off plan
Now that you know how much debt you have, it’s time to pick a plan to attack your debt. In the personal finance world, there are debates about the best way to do that. You’ll understand why when I start explaining how to pay off credit card debt with the following methods. But honestly, any of these options are effective ways to approach your debt.
The debt avalanche
The debt avalanche is a debt payoff plan that’s all about math. You focus on the credit card with the highest interest rates first, which helps you save money on interest charges over the course of your pay off.
Here’s how the debt avalanche works:
- Every month you pay the minimum balance on all of your credit cards.
- You put as much extra as possible towards your credit card with the highest interest rate.
- Once you’ve paid that card off, move onto the card with the second highest APR, paying it off with the same strategy.
This is how I paid off my $40,000 of student loans in 18 months. And I’ll admit, it’s hard to stay motivated. You might start by focusing your energy on a card with a really high balance, and that just naturally takes longer to pay off.
You’re not going to see any quick wins with the debt avalanche, but your discipline saves you a little money in the long run. Sometimes it can even shave time off your debt payoff.
The debt snowball
This popular plan is one that builds your motivation through some early victories. And you can really think of it like a snowball – rolling that small debt payoff into a larger one, then a larger one… until you’ve completely paid off your credit card debt.
Here’s how the debt snowball works:
- Every month you pay the minimum balance on all of your credit cards.
- You put as much extra as you can towards your credit card with the smallest balance.
- After that card is paid off, move onto the card with the next lowest balance, using the same strategy to pay it off.
Fans of Dave Ramsey really swear by this plan because it quickly (at least faster than the debt avalanche) rewards your hard work. Those rewards have positive psychological effects that basically cheer you on. And because it’s hard to find the motivation to sustain a payoff, many people choose this option.
Pro tip: Learn more about how to pay off credit card debt with the snowball and avalanche at Snowball vs. Avalanche: Which Debt Payoff Strategy is Best? You can read more about the differences, from how much you can save with the avalanche and the pros and cons of each method.
The idea here is that you start with the debt snowball – gaining some motivation by quickly paying one credit card off. Then you turn to the debt avalanche. If you get frustrated along the way, you can go back to paying off a card with a lower balance.
I’ve heard a lot of my readers successfully using this approach, so it’s worth a mention!
Pay more than the minimum payment
What all of these methods have in common is that you’re always paying more than the minimum payment. They’re also giving you a clear plan of attack and some people really need a strategy.
If you just want to start working on your debt, just pick a card, any card, and make more than the minimum payment. Keep doing that every month or every time you have extra money, and you will start to see those balances shrink. Seriously, no matter where you allocate that extra cash, you will always benefit from paying more than the minimum payment.
Work with your creditors
Calling your credit card companies and asking if they can lower your interest rates is something that can help save you money. It helps you pay more towards the principal balance and pay off your debt faster.
You can try this when you are first starting to pay off your credit card debt, but it might not work. I mean, still give them a call, but I’m warning you. If they don’t lower your rates in the beginning, ask again in a few months. It doesn’t hurt to ask.
As you start to attack your debt, you’ll be building a better credit history. That’s because you are:
- Lowering your utilization rate
- Making on-time payments
Those two things bear the most weight on your credit score. So, as you keep paying off your credit card debt, you may see your score start to creep up (good!) and that tells creditors that they can trust you. That’s a major part of them lowering your rate.
What about debt consolidation?
Debt consolidation means you are rolling all of your debts together. It makes for a more manageable monthly payment and it can also save you money on interest charges.
Here are two options for debt consolidation:
- Debt consolidation loan. These are fixed interest rate loans that you can take out to cover your balances. The better your credit score, the better your rate.
- 0% balance transfer card. With a card offering a 0% introductory APR for 12 to 18 months, you ideally transfer your balances to your new card and pay off the majority or a huge chunk of your credit card debt during that intro period.
These options are best for those with a pretty good credit score to begin with. Make sure you research each option and check for hidden fees, limitations, etc. You will get a ding on your credit score when you apply for either a loan or new card, so think it through before applying.
When you’re out of other options
There are some situations when debt is just too overwhelming to deal with. You might have an insanely high amount of credit card debt with debilitating minimum payments. And, you’ve exhausted everything else, including finding ways to cut your expenses or increase your income.
For anyone in that situation, here are a few options:
- Debt management plan. These are offered by nonprofit credit counseling agencies that negotiate with your creditors and consolidate your debt. You then make payments through the credit counseling agency. Not all creditors participate and most require you to close your accounts.
- Debt settlement. This is when a debt settlement company works with your creditors to accept less than you owe on your credit cards. However, it can wreck your credit, take years to finish paying off your debts, and you pay a decent amount to the debt settlement company to begin with.
- Bankruptcy. For credit card debt, Chapter 7 (liquidation of debts) and Chapter 13 (restructuring of debts) bankruptcy are options for borrowers who are completely under water. Other differences are how long it takes to discharge your debt and income. And yes, bankruptcy is a big red mark on your credit report.
Those three options are not to be taken lightly. Again, do your research and see if you can start tackling your credit card debt with one of the other options I’ve mentioned.
Articles related to how to pay off credit card debt:
- How to Pay Off Debt: Step-by-Step Plan (That Actually Works)
- How to Stay Motivated While Paying Off Debt
- Why Pay Off Debt
7 tips for paying off your credit card debt:
1. Don’t look at your total balance
I know I told you to find out the total that you owe (you need this in the beginning), but at some point, you’ll want to focus on your credit card debt in chunks. You can think of it as one card at a time, in increments of $1,000, whatever.
With smaller chunks, you are setting milestones for yourself to meet, and it feels really freaking awesome to reach them. You might even want to give yourself small rewards… don’t go wild kids, but celebrating with a decent $10 bottle of wine goes a long way. DM me for $10 wine suggestions – I’ve got a list.
2. Automate your payments
One cardinal rule of credit cards is that you need to make on-time payments every single month. You won’t incur extra fees, it helps your credit score, and it builds good habits. This gets SO much easier if you automate your payments.
You can automate for the minimum payment and then pay extra when you have it, or you can go ahead and automate a fixed amount if you know you can make it happen each month. You can always pay more, but you are the very least keeping up with your payments.
3. Get a side hustle
Getting a side hustle is legitimately one of the best ways to destroy your debt. You work it outside of your normal job, earning extra money to put towards your debt. There are low commitment options, ones that could eventually replace your day job, and several you can start this weekend.
4. Put your debt payments into your budget
If you don’t have a budget yet, do it now. But, make sure you add a line in there for your debt payments. Make it just as important as your mortgage/rent, groceries, health care, etc. Your debt payments shouldn’t be an afterthought.
5. Throw every extra dollar towards your debt
Say you just earned $20 from selling a pair of shoes online, log into your credit card account or call and make a $20 payment. You can make micropayments like this whenever you have extra funds as long as you still make the minimum payment when it’s due.
Micropayments work well for people who get paid weekly or bi-monthly, and budget a portion of their paycheck for extra debt payments. Instead of being tempted by having extra money sitting in your bank account, you’ve already put it towards your credit card debt.
6. Make sacrifices
Paying off your credit card debt quickly takes a crazy amount of dedication. There are going to be times when you need to reassess your wants and needs. I’ll admit, it’s not fun, but it really does help. Sacrifices might be things like:
- Buying a decent used car instead of a brand new model
- Budgeting for only one meal out each week
- Getting rid of cable
- Moving in with your in-laws… been there
Some people even go to extreme measures to make their financial goals happen.
7. Know when to get rid of your cards
This can be a pretty contentious issue, some personal finance gurus tell you to pay off your cards, cut them up, and never look back (you never needed them to begin with!). Now, I don’t buy into that… we don’t live in a cash-only world where people easily have enough on hand to buy a house – credit isn’t all bad when you use it wisely.
However, I will acknowledge that some people have a dangerous relationship with credit cards. If that’s you, then closing some of your cards might not be a bad idea. Having at least one card open can build your credit history (a good thing), especially if it’s the one you’ve had open for the longest amount of time.
The bottom line, don’t rage out on your cards and cut them all up, but know when you have a problem and take steps to protect your financial future.
The final word on paying off your credit cards
The sooner you start paying off your credit card debt, the closer you are to living debt free. There are numerous ways to tackle your debt, and they’re probably all better than letting it continue to grow.
As you work on paying off your debt, start thinking about what caused you to go into debt in the first place…
… Was it because you weren’t earning enough? Then try a side hustle to increase your income.
… If you fell into debt because you weren’t prepared for unexpected expenses, then start building an emergency fund.
… Were you spending to keep up with your peers? Realize that your financial well being is more important than the rest of that noise.
No matter what your reason, paying off your credit card debt and staying debt free is going to be one of the best choices you make for your future.