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How To Payoff Your Credit Card Debt? A Complete Guide

Paying off a credit card debt requires preparation, discipline and knowledge. Here are the best strategies and tips to make it happen
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

Key Takeaways

  • The first essential step for paying off your credit card debt is to determine how much you owe. This can be achieved by listing all of the credit card balances, with the interest rates, as well as minimum monthly payments.
  • The snowball method is one of the most popular strategies for paying down debt. It involves paying off the debt with the smallest balance while making minimum payments with other cards. The Avalanche method involves focusing to pay off the card with the highest interest rate while making minimum payments on other cards. 
  • Another useful approach to paying off credit card debt is to consolidate all of the debts into a single low-interest credit card or loan. This makes it much easier to keep track of payments, while potentially saving some money on the interest expenses as well.

1. Understand How Much Debt You Carry

The first step to paying off your credit card debt is to figure out how much exactly you owe.  A lot of times, you tend to underestimate your total debt when you just rely on memory.

List down all your credit card balances and loans together with the minimum monthly payment and APR of each one.  In the event that you have so many cards, you can’t remember exactly what they are, check your free credit report to be sure. 

Your credit report will contain a list of your credit card accounts and will state the latest reported balances plus the contact information for those accounts.  For more updated information, you can check directly with your bank or credit card company.

Once you’ve got it taped, make a list of all the non-credit card bills you have to pay each month, like your rent or mortgage, auto or student loans, utilities, groceries, gas, child care, etc.  Add the two lists together (your credit card debts and your monthly living expenses) to get your minimum monthly costs.

Next, compare your total with your monthly net income or take-home pay.  Obviously, your income should be more than your monthly expenses.  Now, for whatever money is left over, you have to decide how much of it you are willing to put aside to pay off your debt.

First step to paying off your debt
First step to paying off your debt is to figure out how much exactly you ow (Photo by Mila Supinskaya Glashchenko/Shutterstock)

2. Choose Debt Pay Off Strategy

The trick is to set for yourself a realistic goal of paying off your high-interest credit cards and eventually other types of consumer debt (overdraft, a line of credit, car loans).

The reality is this: it’s very easy to run up a long list of debts (you can also use a credit card debt calculator) in a short time but it takes time and much self-discipline to pay them off.  Keep track of your progress regularly to help you remain focused and motivated to achieve your goals.

In this technique, you pay off the card with the smallest balance first. After that, use the money that you were paying for that debt and use it to retire the card with the next smallest balance.

It is quite tempting to try to retire the card with the biggest balance right away but realistically, your funds may not allow you to do that.  Small victories can provide momentum because it will give you a sense of achievement.  If you have several credit cards with different balances, tacking the smallest balance might be the better choice for you.

Here’s how to do it.  First, take the account with the smallest balance and then make double or triple monthly payments, or whatever you can afford each month. 

Let’s look at an example of 4 different debts, including one that’s $500, one that’s $400, one that’s $200 and one that’s $200.

When you arrange them and start making payments under the debt snowball, you’re going to pay the smallest one before any of the rest.

  • $200 – $30 minimum payment
  • $300 – $40 minimum payment
  • $300 – $40 minimum payment
  • $400 – $20 minimum payment

This means you need to have $130 a month to make the minimum payments.

But let’s say you have $200. You would pay the minimum on the three highest debts (a total of $100), leaving you with $100. You would put that whole $100 to your first debt.

$200
$300
$300
$400
Month 1
$100
$40
$40
$20
Month 2
$100 (paid off)
$40
$40
$20
Month 3
$140
$40
$20
Month 4
$80 (paid off)
$100
$20
Month 5
$80 (paid off)
$120

As soon as you knock down the smallest balance to zero, take care of the card with the next smallest balance. You would continue to do this until you paid off each debt.

This payment strategy brings you the satisfaction of wiping out a credit card balance early on in your payoff timeline.  Hopefully, this sense of victory will keep you motivated to battle each credit card debt until you reduce them all to zero.

Select the card with the highest interest rate and concentrate on paying that debt off first.

Perhaps the most burdensome part of what you pay to a credit card company is the finance charges.  They can quickly eat away at your funds.  To keep your debts at bay, you can focus on first paying off the credit card that gives you the highest interest rate.

Let’s look at a simple illustration. Let’s assume that you have 4 existing debts with the amounts $200, $300, $300 and $400. When you use the snowball method, your strategy would be to pay off the smallest debt first. But in the debt avalanche method, you pay off the debt with the highest interest rate burden first. Therefore, the order of payment would be something like:

  • 1: $400 (25% interest rate, $40 minimum payment)
  • 2: $100 (20% interest rate, $10 minimum payment)
  • 3: $200 (15% interest rate, $10 minimum payment)
  • 4: $200 (10% interest rate, $20 minimum payment)

Let’s say that you have set a budget of $200 for debt payment every month. In month one, you would be able to meet the minimum payments to debts #2 to #4 (a total of $40). Your remaining $160 would all go to debt number 1, taking care of the minimum $40 and an additional $120.

$400 / 25%
$150 / %20
$200 / %15
$400 / %10
Month 1
$160
$10
$10
$20
Month 2
$160
$10
$10
$20
Month 3
$80 (paid off)
$90
$10
$20
Month 4
$40 (paid off)
$140
$20
Month 5
$30 (paid off)
$170

As soon as you’ve paid off the first card with the highest interest rate, move on to the card with the next highest interest rate and so on.

The important thing is to choose a strategy that works for you and stick with it. If you can manage it, you can try a combination approach.  It might come as a pleasant surprise to find that the card with the highest interest rate carries the lowest balance.

How to Use The Debt Avalanche Method
The debt avalanche method's prioritize the higher interest, (Photo by shisu_ka/Shutterstock)

3. Consolidate Your Debts to a Single Card or Loan

Besides the traditional debt payoff strategies, there are additional methods you can consider as part of the debt payoff process.

When consolidating your credit card debt, you’ll only need to make a single payment every month instead of your usual four, five, or even more.  You can even ask your bank to automate your payments, so you don’t run the risk of missing your due date.

But here’s a warning: just because all your debts are now in one place doesn’t mean that they disappeared.  It is important that you concentrate on paying this debt off – it might be good for you to pay more than the minimum amount each month.

You can find many credit card issuers who offer 0% introductory APRs to customers who want to transfer their balance over to their new card from another. 

However, the 0% APR will soon expire – usually around 12 to 15 months.  You may be in luck and find some cards that extend their offers as long as 18 to 21 months. And one more thing:  most offers will involve the payment of a balance transfer fee (around 2% to 5% of the balance you are transferring), so factor that in your computation.

Here are the steps to take:

  1. Identify the debt you want to pay off: Make a list of all your debts, including credit card balances, personal loans, and other outstanding loans.

  2. Look for balance transfer offers: Look for credit cards that offer a 0% introductory APR on balance transfers. Compare the offers, including fees and the length of the introductory period.

  3. Apply for a balance transfer credit card: Apply for a balance transfer credit card that best meets your needs. Make sure to read the terms and conditions carefully before accepting an offer.

  4. Transfer the balance: Once you have been approved for the balance transfer credit card, transfer the debt from your other high-interest credit cards to the new card.

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Things To Consider When Using Balance Transfer

When evaluating balance transfer credit cards, note the following:

  • How long is the 0% APR offer?
  • Does the 0% APR apply to new purchases as well or just for the balance transfer?
  • What would be the effective APR of the card when the introductory offer rate ends?
  • What are the fees that come with the balance transfer facility?

You can go to any credit card website and use their credit card finder to help you find the right credit card for you.  The finder will allow you to sort offers according to various features like low APR or no annual membership fee.  Or, you may want to sort the cards according to credit scores to see which ones your credit score can qualify you for.

Card
0% Intro
Balance Transfer Fee
Annual Fee

chase freedom unlimited card

Chase Freedom Unlimited®
15 months on purchases and balance transfers
$5 or 5%
$0
citi-custom-cash_
Citi® Custom Cash Card
15 months on purchases and balance transfers
$5 or 5% (the greater)
$0

citi simplicity

Citi Simplicity® Card
12 months on purchases and 21 months on balance transfers
$5 or 5% (whichever is greater)
$0

Wells Fargo active cash card

Wells Fargo Active Cash
15 months on purchases and qualifying balance transfers
$5 or 5% (the greater)
$0

BankAmericard®

BankAmericard® credit card
21 billing cycles on purchases and balance transfers made within the first 60 days
3% or $10, whichever is greater
$0

Capital-One-Savor-One

Capital One SavorOne Rewards
15 months on purchases and balance transfers
3%
$0

What if your cash flow situation is not enough to impact your debt as required for the previous methods, what option is left?

A debt consolidation loan could help you pay off the credit card through an installment loan that has a fixed monthly payment amount. 

The idea is to get a new loan that would pay off multiple other debts including your credit cards.  Depending on your credit, you could get a lower interest rate than what you currently pay on your credit cards.

So basically, it will reduce the interest you are paying and help you repay your debt faster. Similar to the idea of a balance transfer, a debt consolidation loan can also simplify your monthly payments by aggregating multiple payments and deadlines into just one.

Things To Consider When Using A Debt Consolidation Loan

If your credit is fair or poor, you would very much get a very high interest and your chances of qualifying for a personal loan would be low.  If you are in a serious debt situation with poor credit, this may not be the option for you.  You might want to look for a good debt management plan.

As you analyze the best strategy for you to pay off your credit card debt, you always have to consider the interest rate and period of the loan.

Would a lower interest rate be more of the priority to reduce your total debt?  Or are you more focused on paying it off quickly?  And here’s one small catch:  the kind of debt consolidation loan that you get and how you manage it would impact your credit. 

6 Tips To A Successful Credit Card Debt Payoff

Quite simply, there is no one true “best” way to eliminate credit card debt because each individual situation is different. You can do any or a combination of the things we’ve talked about: pay off each card in succession, transfer your balances to one card, negotiate for a lower interest rate, or get a loan to pay off the balances.

Whether you have a simple or grand financial goal and dream, paying off your credit card debt is a concrete step in the right direction.  The following pay down tips and strategies will help you find out how to pay off your credit card balances:

Begin by sorting through your monthly spending.  For example, list down how much you spend on groceries, transportation, housing, entertainment, etc.  Your credit card statement will be of help – many card companies already do this for you by categorizing your spending.

Next, look for the expenses that you can cut back and reduce your spending on them.  You can then use the money you’ve saved to pay off some of your debt.

Stick to a budget to stay out of debt in the future.  Make sure you build up an emergency fund so you have a fallback in case a job loss or a health crisis ensues.  Review your budget each month and see if you are spending within the set limits.

While you’ve been trying to pay off debt for a couple of years or so, you might lose sight of what other expenses you can cut.  So rather than searching for what expenses you can cut permanently, look for temporary quick fixes such as memberships, subscriptions, and bundled services where you don’t actually need all the products.

Get in touch with utility and phone companies to see if your services are available for a better deal, or maybe you can downgrade to the basic package for the time being.  If you haven’t done so for some time, tracking down your expenses again might give you some new and fresh perspectives.

Try this:  call your credit card company and ask them if they can cut down your interest rate.  Who knows? They might offer you a balance transfer to a new credit card instead.  Consider going through that option.  However, while you might be paying less interest, you might end up lowering your credit rating.

Carefully weigh the pros and cons of this step.  If you’re not about to apply for a new credit in the next year or two, the balance transfer will be advantageous.  Have a good grasp of the terms and conditions and understanding of how credit card interest rate works so that you know when your lower/zero interest period ends and so that you can use the offer to your utmost benefit.

lower your credit card interest rate
Negotiate with your credit card company to reduce card interest rate (Photo by HAKINMHAN/Shutterstock)

This is obvious:  if you will just pay the minimum amount on your credit card bills it will take you an awfully long time to pay it off.  Most card companies use 2% to 5% as your minimum amount due – which means that it will take you 20 to 50 months to pay for each charge on your card.

So, the opposite is true:  if you pay more than the minimum, you’ll pay less interest overall and you’ll be paying off your card a lot quicker.  Your card company usually will chart this out for you on your statement so you can see how it applies to your charges.

The simple solution?  Pay a bit more every month.  Any dollar over the minimum that you pay goes toward your balance.  The more you keep reducing your total balance, the more you reduce the amount of interest you have to pay.

You might be one of those who regularly contribute to a savings plan.  While this is good, you can also look at the angle that this money could help you pay your debts.  If you already have an emergency fund and are currently saving for irregular expenses, you may want to think about this regular cash outlay.

You can consider suspending extra payments to US Savings Bonds or other savings accounts until such time that you’ve paid off your card debts.  Use this strategy if you are not saving for anything specific such as kitchen repairs.

Think of it this way:  the money you will save by paying your debts faster will be considerably higher than whatever interest you can earn in a savings account.  And if ever you get your hands on an income tax refund, pay increases, or other unexpected funds, use them to pay down your debts.

For even more ideas of where you can find money to help you pay off your debt, check this out.  This showcases all the places you can find money to save.  Then, use the money that you save to pay down debt.

Having high balances on your credit cards isn’t going to help you get good credit scores.  As you may recall, payment history remains to be the biggest factor in your scores but the second biggest item is your debt usage.  In simple terms, it means the amount of debt you are carrying in relation to your total credit limit.

This credit utilization ratio is going to change your credit scores.  Finance experts suggest that you keep it at a maximum of 30% or if you are able, to an ideal 10% of your credit limit to push your scores upward.  The point is this:  if you are maxing out your credit cards, that would certainly bring your scores down.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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