How to Pay Off Credit Card Debt

Money’s Main Takeaways

• There’s no one-size-fits-all solution when it comes to credit card debt, but techniques like the debt avalanche and snowball methods have helped many.
• If you have good credit, a balance transfer credit card or a debt consolidation loan could be good options to reduce what you pay in interest.

If you’re finding it difficult to get out of credit card debt, you’re certainly not alone. According to the Federal Reserve, about 82% of adults had a credit card and roughly a quarter of them carried a balance for most of the previous year. And, with the repeated spikes in interest rates, outstanding balances will grow at an even faster rate.

This article will explore some of the best tactics you can use to pay off your credit card debt so you can get back on the road to financial freedom.

How to pay off credit card debt

There’s no one-size-fits-all solution to paying off credit card debt; but there are a few strategies that can help almost anyone tackle your financial situation and get back on track. These are some of the steps you should consider:

• Pay more than the minimum
• The debt snowball method
• The debt avalanche method
• Negotiate with your credit card company
• Consider debt consolidation
• Adjust your spending habits
• Look into credit counseling services

Pay more than the minimum

In order to get out of credit card debt quickly, you’ll have to make more than the minimum payments every month. When you only make the minimum payment, most of the funds go toward paying interest and don't significantly reduce the principal balance.

For instance, say you have a credit card balance of $2,000 with an annual percentage rate (APR) of 18%. If your minimum payment each month is $40 and you stick to this amount, it will take more than seven years and around $1,700 in interest to pay off your original debt. However, if you make monthly payments of $100, you can pay off the debt in about two years and pay only around $400 in interest.

Credit card interest is compounded daily, and the finance charges you accrue are based on your account’s average daily balance. That means that every day you wait to make a payment, you’ll have to pay more in interest charges.

If you can afford it, you could make more than one payment per month — say one every paycheck, for example. Just make sure that the total amount you pay is more than the minimum payment.

The debt snowball method

Popularized by personal finance expert Dave Ramsey, the debt snowball method involves paying off your smallest debt first. You’ll still make the required minimum payments on all your debts, but you’ll allocate as much as you can to the smallest debt. Then, once that debt is paid off, you add the amount you were paying toward that smallest debt, to the next smallest balance and so on.

This payment strategy could be particularly beneficial if you have multiple small debts. It can also help if you have previously struggled to stick to a debt reduction plan. According to some behavioral economists, eliminating small debts early on in the process helps some people stay motivated by providing a sense of progress and quick relief.

However, this method may not be the most cost-effective for some people since high-interest debt can grow exponentially while you pay down the smallest balance on your list.

The debt avalanche method

Also known as debt stacking, the debt avalanche method involves paying off debt with the highest interest rates first.

By prioritizing your debts based on their interest rates, you can reduce the amount of interest fees accrued over time and save money in the long run. Say, for instance, you want to pay off a credit card and an auto loan with the following balances and interest rates:

With the debt avalanche method, you would first take on the credit card, which has the highest interest rate, by making more than the minimum payment on it, while only paying the minimum on your auto loan.

Once you’ve paid off the credit card, you can add the money you were using to pay it to the auto loan’s monthly payment and settle that debt much quicker.

Check out our guide on the debt snowball and the debt avalanche methods for more information.

Negotiate with your credit card company

There’s no way around it: Credit cards’ interest rates are high, some of the highest of any lending product in fact. Ranging between 15% to all the way up to 30% or more, these rates can make a small monthly balance turn into considerable debt that can take years to pay down.

So, if you're trying to pay off credit card debt fast, negotiating lower interest rates with your credit card issuers is a good way to do so.

Note that you’ll have a better chance of getting a lower interest rate if you’re a long-time customer with a history of making your payments on time. If that’s your case, when you call to negotiate your debt, mention how long you’ve been a customer and your history of timely payments. You may be surprised how often these companies are willing to lower their interest rates to keep you as a customer.

Negotiating better interest rates can help you save money in the long run, and you can use the extra money you save to make larger payments toward other accounts, thus settling debt faster.

Consider debt consolidation

Debt consolidation is a financial strategy that involves combining multiple debts into a single account. It can be a good idea if you have multiple credit cards with high interest rates. If you consolidate at a lower rate, you’ll pay less interest and will only have one debt payment to make every month.

Here are two way in which you can consolidate debt:

Debt consolidation loan

When you get a debt consolidation loan, the lender usually deposits the loan amount (minus fees) into your bank account. You can then use the funds to pay off your creditors. Some lenders, on the other hand, might send the payments directly to your creditors. Once your accounts are settled, you'll only have to pay the debt consolidation loan, which will have a fixed monthly payment and interest rates.

Note that multiple lenders advertise debt consolidation loans as a different financial product than personal loans. However, both loans are essentially the same, offering fixed interest rates and a set monthly payment. That being said, it’s a good idea to compare rates for both debt consolidation and traditional personal loans, as one might be lower than the other.

Keep in mind that debt consolidation loans have the same credit requirements as other types of loans, so borrowers with bad credit scores might not qualify for the best debt consolidation loans.

Balance transfer credit cards

If you have a good to excellent credit score, you might be eligible for a balance transfer card.

Balance transfer credit cards allow you to transfer the balance from one or more credit cards to a new one with an introductory 0% APR, which usually lasts between 12 to 21 months. This introductory period gives you a chance to pay down your debt without accumulating interest charges. Since you’re not paying interest, your entire monthly payment goes straight towards paying down the principal.

If you have one of these cards, it’s important to pay down your balance before the promotional period ends; once the regular APR starts, you’ll have to start paying interest again.

It’s also important to note that most balance transfer cards charge a balance transfer fee of at least 3% of the balance you’re transferring — an amount that can add up if you have a large amount of debt.

For more information, check out our list of the Best Balance Transfer Cards.

Adjust your spending habits

As we said above, if you’re trying to get out of credit card debt, you’ll have to make much more than the minimum payment. For many people, this means finding new ways to save by tracking their expenses and eliminating unnecessary ones.

Start by writing down your required monthly expenses — such as mortgage and utilities — from your discretionary or non-essential expenses. Then analyze which of those discretionary expenses you could eliminate or reduce so that you can apply that amount to increasing the payments you make to your credit cards.

Look into credit counseling services

If you’ve already tried the tactics mentioned on this list and are still struggling to get your credit card debt under control, it might be time to call in the pros. Non-profit credit counseling services can examine your financial situation and help you create a repayment or debt management plan.

Nonprofit credit counseling services can look at your particular financial situation and help you create a repayment or debt management plan.

Debt management plan

A debt management plan (DMP) is a repayment strategy in which a credit counseling agency can help you reduce your credit card interest rates and monthly payments. These agencies will work with your creditors to negotiate better loan terms, and once the DMP is set, you’ll make one single monthly payment to the credit counseling agency and it will distribute it among your creditors.

A DMP can help you avoid late payment fees and collection calls. Additionally, the repayment plan will most likely include ways to prevent additional damage to your credit by outlining ways to remove negative items from your credit report and ways to improve your credit score, if needed.

How much credit card debt is too much?

There’s no definitive answer to this question. One sign is that you’re having difficulty making minimum debt payments, or perhaps you’ve started using one credit card to pay off another.

Here are a few more indications that you have too much credit card debt:

• Your credit utilization ratio is above 30%: This ratio compares the amount of credit you use to the total amount of credit available. Ideally, your utilization ratio should be 30% or less.

• Your debt-to-income ratio exceeds 36%: This ratio compares your monthly average debt, including your credit cards, to your monthly gross income. Ideally, you want to keep your DTI ratio below 36%.

Summary of How to Pay Off Credit Card Debt

There isn't a one-size-fits-all way to become debt-free. However, if that’s your goal, several strategies for paying off credit card debt can help you get there faster.

Start by setting reasonable, achievable budgeting goals and paying more than the minimum on your cards to avoid accruing excessive interest charges.

You can also consider a debt consolidation loan, a personal loan or a balance transfer credit card. Just be sure to evaluate the terms of new cards or loans carefully to determine if they offer lower rates than what you’re already paying.

If you're struggling to manage debt independently, you can contact a nonprofit credit counseling agency. Professional counselors often offer free educational resources and can help you craft a debt repayment strategy. They may also recommend you sign up for a debt management plan, during which your counselor negotiates with creditors to reduce interest rates, waive late fees and establish more manageable monthly payments.