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6 ways to pay off credit card debt


Getting out of credit card debt can be daunting, but it’s totally possible. Many Americans are struggling with credit card debt. The average credit card balance is $5,525, according to Experian’s 2021 Credit Status Report. And while the national average has fallen since 2019, the COVID-19 pandemic has strained some wallets more than others.

Unless you receive a windfall, there is no quick fix to getting out of debt, despite what lawyers or infomercials might have you believe. However, a combination of smart money moves can reduce your debt, lower your interest rates, and put you on the right path to a debt-free life.

Here are six techniques for paying off credit card debt the smart way.

The avalanche method

If you want to get out of debt as quickly as possible, list your debts from highest to lowest interest rate. Make the minimum monthly payment on each, but throw all your extra cash on the highest-interest debt. This is sometimes called the “avalanche” debt repayment method.

This strategy is good for saving money because you’ll have paid the least amount of interest overall compared to other strategies, says J. Dennis Mancias, former financial advisor at Symmetry Financial Solutions in San Antonio.

If you have, say, $600 a month that you can budget to pay off debt, you would use the majority of those funds to pay off the highest-interest debt first. Once that debt is paid off, you can focus those funds on the next highest interest rate debt and eliminate it faster because you won’t have as much interest to pay off.

“The key to this strategy is to maintain the debt payment of $600 per month throughout,” Mancias says. “So once a card is paid, you don’t eliminate that payment, but transfer it to the next card to speed up the payment.”

Paying off the most expensive balance first might be the cheapest way to get out of debt, but if you don’t stick to this method, it won’t save you money.

  • Who is this strategy good for: Those who are motivated by interest savings.

The snowball method

With the “snowball” method, you repay your debts from the smallest to the largest. Getting debt paid off as soon as possible is a good motivator that could help you stay on track.

As with the “avalanche” method, you make the minimum monthly payment on each debt, then go all out on the one you set out to pay off. Once you’ve paid it off in full, you allocate the money you allocated to it to the next largest debt on your list.

  • Who is this strategy good for: Those who are motivated by small successes.

Consider a credit card with balance transfer

If you have good to excellent credit despite your debts, which is possible if you have made your minimum monthly payments on time and are sticking Low credit utilization ratio – You may qualify for a 0% APR balance transfer offer with a balance transfer credit card.

This interest-free introductory offer can last from 12 to 21 months and will allow you to transfer your higher interest balances to the new card. You’ll save on interest for the duration of the 0% period, making it easier and faster to get out of high-interest debt.

“You still need to be careful about the interest rate after the promotional period ends,” says Justin Zeidman, assistant vice president of open banking at Navy Federal Credit Union. Consider how long it will take to pay off your credit card debt relative to the promotional period so you don’t end up with a higher interest rate after the 0% interest period ends.

  • Who is this strategy good for: Those who know how to keep track of credit card payments.

Control your expenses

Sometimes people run into credit card debt due to unexpected medical or emergency expenses. Other times, the source of the debt is chronic overspending, which often means you’re spending more than you’re saving or more than you have in your account. To get a complete picture of your expenses, setting a reasonable budget is the next best step towards debt relief.

Matt Kelly, owner of Momentum: Personal Finance Coaching in Durango, Colorado, recommends that your budget consider the following:

  • Basic necessities: rent/mortgage, utilities, groceries and gas
  • Obligations: minimum payments on credit cards and other debts
  • Nice to have: restaurants, coffee and entertainment costs
  • Irregular recurring expenses: insurance, auto repairs, tires, haircuts, vitamins, toiletries, vet bills, vacation gifts, travel, weddings, and gifts

It’s the last category that often trips people up and becomes the source of credit card debt, Kelly says. “These small and not-so-small expenses go on the card and are difficult to pay back.”

Once you’ve put your expenses on paper or entered them into a spreadsheet, go through each item and find ways to free up enough money each month to pay off all your debts in 12 to 18 months, says- he.

  • Who is this strategy good for: Anyone who does not have a sufficient budget.

Grow your emergency fund

If you’re one of the many Americans who don’t have significant savings, credit card overuse is an easy trap to fall into, especially if you can’t borrow from friends or family. family or reduce expenses.

“You need to build your savings first before you focus on your debt,” says Steve Repak, Certified Financial Planner and author of “6 Week Money Challenge.”

He suggests increasing your short-term savings to at least $500 while only making minimum payments on your existing credit cards before you start focusing on your debts. This way you can dip into your savings instead of swiping your credit card if you have an unexpected expense.

“For consumers who are in debt and whose income is not high enough to save anything, they either have to reduce their spending or increase their income, and the best case scenario would be to do both,” Repak says. “Topping up your living expenses using credit cards can’t be a solution.”

  • Who is this strategy good for: Anyone without a large emergency fund.

Switch to cash

If your main goal is to pay off your credit card debt, the last thing you want to do is add to that debt by continuing to charge your expenses.

“Stop using your credit cards,” Repak says. “It seems like a no-brainer, but sometimes it’s easier said than done.”

Paying cash not only keeps you from racking up more debt, it can also help you spend less overall, due to the psychological act of handing over physical bills. It also forces you to plan ahead and makes some purchases inconvenient, so you’re less likely to make them.

  • Who is this strategy good for: Anyone looking for ways to limit their credit card usage.

Debt Consolidation

Debt consolidation can be a useful way of consolidating multiple lines of high-interest credit card debt into one loan with one fixed monthly payment. You can consolidate your debts by initiating a balance transfer (as we mentioned earlier). But, you might consider taking out a debt consolidation loan or even a home equity loan.

Debt consolidation can make paying off your debts easier and less expensive, but only if the debt consolidation loan’s interest rate is lower than your credit card interest rates. Use Bankrate’s debt consolidation calculator to find out how much money you could save on interest.

Debt consolidation loans also have an advantage: if you make the monthly payments in full and on time, your credit score could have a positive impact. The best debt consolidation loans tend to carry lower interest rates than credit cards, so if you qualify, you may be able to save money on your credit card debt.

  • Who is this strategy good for: Someone with too many credit card accounts who has trouble managing their payments.

The bottom line

Credit card debt can be a challenge and seem insurmountable. But armed with the information you need to tackle it, you can start reducing your debt. There are many approaches you can take; choose the strategies that best suit your situation.

Bankrate’s debt management tools and resources can help you get started and guide you through the process of paying off credit card debt so you can improve your credit score.