How to Pay off Credit Card Debt – The Ultimate Guide
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For many, debt is a part of life — whether you’re renting a car, own your home, or are straddled with student loans. But some types of debt are worse than others. Credit card debt, for instance, is particularly troublesome because credit cards have some of the highest interest rates of any type of debt. While avoiding getting into credit card debt in the first place is an easy solution, for many, it’s not realistic.
If you have credit card debt, setting up a debt management plan to help you pay down your high-interest credit cards or other loans is imperative. This may involve addressing overspending, replacing your high-interest debt with a lower interest rate loan, or getting more aggressive about your debt payments.
Regardless of the credit card debt you carry — or how you got into this position — I have a few key tips that can help you spring a debt reduction plan into action while preventing you from getting into this position in the future.
In this article
How to Pay off Credit Card Debt
Figure out why you’re carrying credit card debt
This first step is crucial. It may feel overwhelming, but understanding why you have credit card debt will help you move forward more confidently and change your spending habits. This isn’t about judgment — it’s about recognizing patterns so you can make more financially healthy choices in the future.
There are several reasons why you might be drowning in credit card debt. Maybe you lost your job and subsidized your living expenses with a credit card. Maybe you didn’t have an emergency fund and needed to charge an expensive home or car repair onto your credit card. Or, maybe, you’re spending more money than you make and need to sit down and create a home budget.
For many of us, spending money can be emotional. Buying things to make your home look better or upgrade your wardrobe brings instant gratification — but it’s important to make sure anything you buy fits into your budget. I encourage you to take a look at how much money you’re bringing in and see how much you have left after paying for your major expenses — rent, utility bills, groceries, transportation, etc. — and then coming up with a plan to save a certain percentage and nailing down a certain number you can spend on items or services you enjoy each month.
If you need help along the way, you can reach out to a nonprofit credit counseling service or check out our resources for improving your credit. I don’t recommend paying a company to help with your debt — too many scams could eat into your finances without returning helpful results.
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Stop using your credit cards for charges
While you're focusing on repaying your debt, it’s important not to add any extra charges or interest to your credit cards. Debt repayment should be your main goal, so take a break from credit cards during this process. This will save you money in interest while you’re repaying your debt.
Once you know your budget and have repaid your balances, you can use credit cards again to earn rewards or miles for trips, as long as you pay them off in full each month. Even once your balances are paid off, you may want to wait before swiping these cards again until you feel confident about your budgeting process. This way, you won’t end up in the same situation again.
Understand how interest is adding to your debt
To illuminate just how debilitating credit card debt can be, you should understand how your annual percentage rate (APR) impacts your debt.
For instance, if you have a credit card balance of $1,000 at 26.99% APR, you may think making the minimum monthly payment is all that's needed. And while this will show an on-time payment record, only paying the minimum required could cost you hundreds in interest charges.
Using Discover’s credit card calculator, let’s say you repay your 26.99% APR card balance of $1,000 using only the minimum payment of $35. This would take you 45 months (almost four years) to repay this balance. In the meantime, you’d end up paying $570 in interest — which is a lot.
However, if you were to pay double the minimum ($70 per month), you’d be able to repay your debt in less than a year and a half (17 months) and would only pay $190 in interest.
For this reason, reducing your interest rate by consolidating your debt into a lower-interest loan is a smart choice. And if you can’t do that, paying more than the minimum is recommended.
Related: 7 Realistic Strategies to Pay Off $25,000 in Debt
Debt Consolidation Calculator
Choose the debt repayment strategy that works best for you
There are many ways to repay your debt, and before you decide on one, I recommend totaling up your total debt balances, so you know what the actual number is. You can do this by using a service like Experian Plus or Credit Karma to find out how much debt you’re carrying — or you can obtain your credit report for free by going to www.annualcreditreport.com to request a copy. This report will show all of your debt balances.
From there, you could simply come up with a repayment plan that you can afford and make monthly credit card payments — but if you have high-interest credit cards, I encourage you to try one of these strategies to save yourself some money in interest while you’re making credit card payments.
1. Transfer your credit card debt with a balance transfer credit card
This strategy works best if you know you can repay your credit card balances in 1-2 years. So, for instance, if your total credit card debt is $12,000 and you can afford to pay $600 per month, you could repay your debt in 20 months if you don’t have to worry about interest.
A balance transfer credit card offers you a 0% or low annual percentage rate (APR) for an introductory period. Many balance transfers offer you this interest rate for 12-24 months, so if you can diligently pay your monthly amount on time, signing up for one of these cards (or taking advantage of an offer to transfer a balance with an existing card) can help eliminate your high credit card interest payments.
You often need good credit (mid to high 600s) to qualify for a balance transfer card. You also want to make sure you can pay off the balance before the introductory APR period ends. Otherwise, you risk high interest hitting your balances after this term ends — which can set you back. Cards also often charge a balance transfer fee, which is a percentage of the amount you transfer. This fee is typically between 3% to 5% of your balance transfer, so if you’re moving $10,000, you will pay a $300 fee. Be sure to factor this in when considering this debt repayment method.
2. Consider a low-interest personal loan
Interest rates are rising across the US as the Fed struggles to contain high inflation. That means your credit card APRs are also rising. While personal loan rates are rising, a personal loan generally has much lower rates than credit cards — even if you have less than perfect credit.
Consolidating your debt with a personal loan can be a good option if you want more time to repay your debt at a lower interest rate. It also helps consolidate your debt into one monthly payment, so you won’t accidentally miss paying an account and face late fees.
Keep in mind, many loans charge an origination fee, which is a percentage of the loan amount, depending on the loan terms you agree to. You may be able to avoid this with good credit or by choosing a shorter repayment term from 12 to 24 months.
Related: Best Debt Consolidation Loans
3. If you own a home, a home equity loan or HELOC could help
This last option is tricky. If you’re a homeowner who has built up at least 20% equity in your home, tapping into your home equity can offer you a lower-rate loan to pay off your debt — but it comes at a risk. A home equity loan or line of credit (HELOC) is secured by using your home as collateral. If you cannot repay the balance, you could lose your home.
For this reason, I do not recommend this option if you’re facing economic hardship or struggling to make debt payments. But, if you’re confident you can repay your balance and make the minimum monthly payments each month, it can offer you a lower rate than other personal loans — saving you more money in interest.
To qualify, you’ll typically need decent credit and 20% equity in your home. To figure out how much equity you have, subtract your remaining mortgage balance from the value of your home. Then, divide this number by your home value to get your equity percentage.
If you owe $300,000 on your home and it's worth $500,000, you’d have $200,000 built-in equity. Divide $200,000 by $500,000 to get 0.40 or 40% in equity. In this scenario, that means you may qualify and could borrow a percentage (usually up to 85%) of the equity you’ve built ($200,000). If you’re using this type of loan to repay credit card debt, I don’t recommend borrowing more than you need.
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What to do if you can’t consolidate your debt
In some cases, your credit score may be too low for you to qualify for any good debt repayment options. If you’ve maxed out your credit cards, your credit utilization may be too high for you to get approved for new credit. Your credit utilization score helps lenders see how you use credit. For instance, if you have $10,000 in credit across all of your credit card accounts and have a total running balance of $7,500, your credit utilization rate would be 75% ($75,000 divided by $10,000). In general, you should aim for a 20% to 30% utilization rate, which would mean only holding a $2,000 to $3,000 balance across all accounts in this instance.
If you can’t get approved for a lower-interest account or simply do not want to apply for new credit, here are some ways to reduce your credit card debt:
Debt avalanche method
If you have different credit card accounts and you’re struggling to decide which one to focus on first, you may consider the debt avalanche method. This method lets you concentrate on repaying the highest interest rate card first, then moving on to the next.
You still pay the minimum balance on all cards but would put more money on the card with the highest interest rate. So let’s say you have the below four cards:
- Card 1 - $1,000 balance, 25.99% APR
- Card 2 - $2,000 balance, 18.99% APR
- Card 3 - $500 balance, 20.99% APR
- Card 4 - $400 balance, 16.99% APR
In this scenario, make minimum monthly payments for all four cards, and put any extra money into Card 1. Then, once Card 1 is paid off, redirect your minimum payment for this card and any additional money to Card 3. After Card 3 is repaid, redirect funds to Card 2, and lastly, Card 4.
This process allows you to minimize the interest on your accounts by focusing on the highest interest rates first.
Debt snowball method
If you enjoy setting and accomplishing small goals or want to see progress immediately, the debt snowball repayment method may work well for you. The snowball method focuses on repaying the smallest debt first and working your way up.
Like the avalanche method, you’ll still make minimum payments on all cards each month. But, you’ll direct extra funds to your smallest balance first, then move on to the next smallest balance. Let’s look at the same scenario from above:
- Card 1 - $1,000 balance, 25.99% APR
- Card 2 - $2,000 balance, 18.99% APR
- Card 3 - $500 balance, 20.99% APR
- Card 4 - $400 balance, 16.99% APR
With the snowball method, you’d focus on repaying Card 4 first, then Card 3, Card 1, and lastly, Card 2. This allows you to pay off some cards sooner, offering smaller victories along the way and keeping you motivated on your debt repayment journey.
Other repayment strategies to consider
There are many other ways you could repay your balances. If you’re not worried about paying off one sooner than the others, making minimum payments and splitting any extra money against all accounts is one strategy. Another option is to concentrate your payments on the largest balance first.
If you’re looking to reduce the interest you pay in the long run, I suggest the debt avalanche method. But as long as you’re paying more than the minimum on one or all of your cards, you’re on your way to making a dent in your debt.
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What if I don’t make enough to afford my debt payments?
In this case, it’s time to review your expenses to see if there’s anywhere you can cut costs to help afford your debt payments. Look at your bank account transactions from the past month. Is there anywhere you could be spending less?
This might mean making some compromises in your lifestyle. Maybe, for instance, instead of ordering takeout a few nights a week or investing in a meal-prepping service, you cook at home. Or maybe you don’t need ten different streaming subscriptions while you’re focusing on your debt. You can also look for cost-saving alternatives to utility and phone bills or even call your existing companies to see if they’ll negotiate what you’re paying.
If you cannot find enough room in your budget to cut expenses, you might consider a side hustle to help you make your debt payments. I suggest figuring out how much time you can feasibly commit to a second gig before getting started. For instance, it’s probably not smart to start working an additional 20 hours a week (if you can afford not to). Instead, start with 5 to 8 and increase the amount from there if you feel you can.
You can find side hustles doing things you love or using skills you have to use. Maybe you decide to walk dogs or babysit for nearby families throughout the week. Or, maybe you tutor on the weekends or begin freelancing as a writer for some extra cash.
Try to find a side hustle that you enjoy, rather than one that just pays well. This can prevent you from feeling burnt out while repaying your debt — even if you’re earning less money.
How to stay motivated while you pay down credit card debt
Putting your money into debt isn’t fun. But it can feel a bit easier and motivating if you remember why you’re doing it. Maybe you’re looking to buy a home and want to boost your credit score while reducing the amount of debt on your credit report. Maybe you realize you overspend and want to balance your finances better.
Whatever the reason, checking in on your goals weekly or monthly can help you stay motivated. You might use a debt repayment tracker or app to help you stay on top of your progress. This can visually show you how far you’ve come and encourage you to keep working towards your goal.
Maybe tell a friend or trusted mentor what you’re doing, so they can check in with you and encourage you along the way. Or, think about what goals you can hit when your debt is repaid, and you can put that money towards other savings plans, like a vacation or down payment for a home.
We’re all motivated differently, so what works well for one person may not work well for you. Figure out what keeps you going and devise a plan to check in and hold yourself accountable as you embark on your debt-free journey.
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- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Saving money when paying off credit card debt
Every financial expert has different advice regarding saving and repaying debt. Some recommend concentrating only on repaying your debt, while others suggest you save a certain amount before drilling in on your debt.
I think it’s important to try to save while repaying your debt. Here’s why: if you don’t have an emergency fund or any savings in place and put all of your money towards your credit card debt, you may be tempted to use your credit cards during this time.
What if your car breaks down or your roof has a major leak, and you don’t have any savings to put towards this expense? You may need to run up your credit cards to cover the cost of this charge, setting you back on your credit repayment journey.
If you can’t make sure you pay the minimum on your cards, whatever money is left over should then be split between your debt and your savings. So, if you have $150 left over each month after paying the minimum on your cards, put the extra $75 towards savings and the other $75 towards your debt.
You can customize this suggestion and split it differently, but the important part is that you’re saving while paying off your debt, so you have some sort of cushion to fall back on if needed.
Related: How to Budget When You’re Broke
The bottom line
Millions of Americans are in credit card debt, and a repayment plan can be daunting. And with inflation at an all-time high and prices rising across the country, it’s tempting to turn to high-interest cards to help ends meet. Prioritize repaying your credit card balances by first looking at how much you owe and coming up with a plan you can stick to. Try to avoid using credit cards during this time, and don’t return to using them until you feel confident you won’t overspend and can afford to make payments in full each month.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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