Debt ConsolidationCredit Card Debt Consolidation

How to Pay Off Credit Card Debt

Credit card debt can feel overwhelming and demoralizing. Whether you generally have reasonable spending habits and have simply fallen on tough times, or you’ve long struggled to pay your bills, growing balances and rising interest are hard to stomach.

With discipline, though, it’s certainly possible to get back on a firm financial footing. Money is an emotional subject for many people — yet there are concrete steps for tackling your credit card debt.

Here’s how to finally get credit debt-free.

Create a plan of attack

Pay off the smallest balance first

Pay off the highest interest card first

Use a balance transfer credit card

Apply for a credit card consolidation loan

When to consider credit counseling

Other strategies to manage credit card debt

Create a plan of attack

The first step towards tackling your debt is to understand the problem. This means you’ll have to evaluate your finances — and, yes, look at your account balances — and determine how much money you have coming in and going out, as well as how much you owe that you aren’t currently able to pay down. From there, create a budget that can help you prioritize spending in a way that allows you to reduce debt without racking up more in the process.

There are many ways to create a budget, from pen-and-paper formats to budgeting apps that automatically track and categorize your spending across your credit cards and bank accounts. Regardless of which strategy you choose, you’ll need to collect information about all income sources and expenses to better understand how much you spend in a certain time period and how much you can actually afford.

Once you have a handle on your financial situation, you can create a plan of attack for paying down your debt.

Pay off the card with the smallest balance first

One option for debt repayment is to tackle your smallest balance first. Once that card or debt is paid off, you move onto the next smallest — and so on, until each outstanding bill has been eliminated. This is known as the debt snowball method.

Here’s how it works:

  • Write down all of your debts, including balances, APRs, and minimum payments on each credit card, loans and bills. List debts out from the lowest balance at the top to the highest at the bottom.
  • Make only the minimum payments required on all debts except for the first one on your list — the one with the smallest balance.
  • Based on your monthly budget, determine how much you can afford to pay toward that smallest balance above the minimum payment. Pay as much as you can on this debt until you’ve eliminated it from your list.
  • Then, “snowball” those funds toward your second-smallest balance while you make minimum payments on your remaining debts. Continue until all of your extra budgets goes toward your final debt.


Who is the debt snowball method best for?

The debt snowball method is useful if you are just starting to tackle your debt and want to see your efforts pay off quickly — no pun intended. Harvard researchers found that paying down the smallest debt first has a “powerful effect on people’s sense of progress” and “enhanced their motivation to succeed.”

That’s the major pro of the debt snowball method — it is designed to help you achieve quick, incremental wins that can keep you on track and committed to your debt repayment plan. It also helps create the discipline required to tackle larger debts later.

According to Carol Craigie, a certified financial planner and managing partner of Fiscal Fitness Clubs of America, another advantage of the snowball method is the additional cash flow as you pay off each debt and have one less bill you’re responsible for each month. This is helpful in the event of an emergency, but it can backfire if you don’t prioritize your remaining debt.

“That is stress relief, but it doesn’t mean people always do the right thing with the money,” she said. “Sometimes people will start spending that money as opposed to continuing to put it towards debt.”

Another con of the debt snowball method is that it can cost you more in the long run. If your smallest balances also have the lowest interest rates, your larger debts are racking up significant interest while you make only the minimum payments.

Pay off the card with the highest interest rate first

The debt avalanche method is an alternative to the debt snowball. With this method, you prioritize the debts with the highest interest rates first, regardless of the balance on each. To get started, you would gather the same information about your debts as in the snowball example above.

However, this time you would list your debts in order from highest APR to lowest and make minimum payments on all balances except the one with the highest interest rate. Once you determine how much you can afford to put toward your debt each month above your minimum payments, apply that extra amount to your highest interest debt.

Who is the debt avalanche method best for?

The debt avalanche method can work especially well if you have extra income, such as a recent raise or a second job or side gig, according to Craigie — this means you have more money to put toward your debt without adding additional worry about covering your routine expenses. This method can also work well if you are motivated by the numbers — debt avalanche generally saves money in interest payments and takes less time to complete.

That’s the primary advantage of the debt avalanche method: It helps you save more in the long run, and it also may help you tackle your debt more quickly.

The downside is that debt avalanche doesn’t provide the same emotional boost that you’ll get with debt snowball. You may get discouraged if you don’t see regular progress toward your goal of paying off your debt — it may take months or years to eliminate a single debt — which can impact your motivation to continue with your payoff plan. One way to mitigate this is to calculate when you’ll pay off your final debt under each method.

“We find that we can get over that emotion by giving people their debt-free date,” said Craigie. “If you do the countdown, that’s a pretty good emotional lift.”

Use a balance transfer credit card

An alternative to tackling each of your debts separately — especially if your interest rates are high — is to consolidate them onto a balance transfer credit card. With this method, you’ll roll your debt(s) from one or more credit cards onto a single card that has a lower interest rate than what you’re currently paying or, ideally, a promotional 0% APR for 12 to 21 months.

Who is a balance transfer card best for?

A low-interest or 0% APR card sounds great, but in order to qualify your credit must be good to excellent. This means that if you’ve been in debt for a while, or your total credit usage is high, you likely won’t have a balance transfer option.

There are other caveats to balance transfer cards, so make sure you read the fine print before committing.

That said, if you qualify for a 0% APR card and are confident that you can pay off your debt during the promotional period, it can be helpful to have a single payment each month, rather than two or three, or even five — plus, you’ll avoid interest charges.

There are a few additional pros of a balance transfer:

  • The new card may come with travel rewards, points, a sign-up bonus, or other perks.
  • Some cards offer free balance transfers, which is one less cost you have to worry about.
  • Unlike some personal loans, there’s no penalty for paying your balance off quickly or before the end of your promotional period. In fact, the faster you pay down your balance, the less likely you are to get hit with an interest rate increase.


Here are a few additional caveats of a balance transfer:

  • Fees — some cards do have balance transfer fees calculated as a percentage of your total transfer amount. It’s usually between 3% or 5% of the transferred balance.
  • You can’t transfer balances if your cards are from the same credit card company — Chase to Chase, for example.
  • If you aren’t able to pay off your balance before your promotional period ends, the card will revert to the standard APR, which may be higher than the interest rate on your original debt.
  • Some cards have a transfer limit, so you may not be able to consolidate all of your debt onto a single card.
  • Some cards charge deferred interest. That means if you leave so much as $1 on the card balance once your promo period is up, they will charge you for interest going back to the very beginning of the card opening.
  • It can be tempting to rack up new debt after you complete a balance transfer — resist the urge.
  • Intro APR may not apply to new purchases. Read the fine print carefully.

Apply for a credit card consolidation loan

Like a balance transfer, a debt consolidation loan can streamline multiple balances into a single payment you can make each month. There are a few different kinds of consolidation loans, but for credit card debts you might consider a personal loan. Ideally, this loan will have a lower interest rate than your credit cards, so you’ll save interest in addition to simplifying your monthly bills.

Who is a credit card consolidation loan best for?

Again, similar to a balance transfer card, you’re likely to get the best rates on a personal loan with a higher credit score. Poor credit doesn’t disqualify you from receiving a loan, but it may not be advantageous if the interest rate is higher than what you’re currently paying.

A consolidation loan may also benefit you if you are getting hit with finance charges or fees on your debt, if you have trouble managing multiple accounts and payments, or if you can only afford minimum payments on your outstanding balances.

Here are a few additional pros of a personal loan for debt consolidation…:

    • Because personal loans come with a fixed rate and monthly payment, you’ll know exactly how to budget.
    • Personal loans don’t have balance transfer fees, though your lender may charge an origination fee.
    • The repayment period is longer than intro periods on balance transfer cards — 24 to 60 months are common term ranges.
    • You may be able to prequalify for personal loans and shop around for rates without dinging your credit score.
    • Adding another line of credit — and making on-time payments — can also raise your score over time.

…and the cons of personal loans for debt consolidation:

  • You will have to pay interest on your loan balance.
  • Some lenders charge origination fees, which are paid upfront or rolled into your loan balance. Compare offers to determine which lenders do this.

When to consider credit counseling

If you feel overwhelmed when it comes to tackling your debt, or if you’ve already tried the above methods and haven’t made progress, consider seeing a credit counselor talk about your options. Credit counseling agencies are nonprofit organizations that help negotiate better terms and lower interest rates and fees and streamline debt payments.

Credit counseling may lead to a debt management program, in which the agency consolidates all of your payments but leaves your debt with individual lenders. This means that you’ll make a single monthly payment, and your credit counselor will distribute this among your debts. There is a cost to enroll in debt management, as well as a monthly fee.

That said, going to credit counseling doesn’t commit you to a debt management program. In fact, debt management isn’t right for everyone, and according to Thomas Nitzsche, a credit educator at Money Management International, many clients who come in for counseling decide to take alternate steps to tackle their debt.

“It really depends on how well the person is in both in their personal organization and their ability or willingness to self-advocate,” Nitzsche said. “It doesn’t cost anything to get a consultation and figure out what your options are. You’re not under any obligation to start at that moment, but you can take that information and compare it and see what you can do on your own.”

Other strategies to manage credit card debt

Regardless of which debt repayment method you choose — whichever one is best for you will depend on your personal situation — Craigie also recommends improving financial literacy and altering day-to-day habits to get a handle on your debt and maintain better control of your money going forward.

Improve your credit score

If you’re not eligible for a balance transfer or personal loan due to poor credit, one key step is to improve your credit score. Start by lowering your credit usage — this means stop spending! Don’t close down any accounts, but avoid using those that are already racking up significant interest. Pay down what you can using the avalanche method, and aim to get your balances under 30% of your total credit.

This takes some patience, and it may feel stressful not to have any debt paid off immediately, but Craigie notes that on-time payments and lower usage can help scores rebound in just a few months. With a higher score, you can take advantage of better rates on personal loans and balance transfer cards.

Control your cash flow

If you already have credit card debt, you may have some bad spending habits. There are a variety of ways to rein in spending, from using cash only to mandating a 24-hour waiting period for every purchase.

Craigie also encourages clients to try a two-week vacation from spending or a month-long savings challenge, and find a buddy with whom you can share your progress. This is one way to take action while you work on improving your credit score.

“Instead of taking the approach that I have to sit back and wait, get creative,” Craigie said. “What can I do to save money? To make money?”

For example, list items you don’t need on Craigslist, earn $15 taking quizzes online, host a garage sale, or get a part-time gig a few weekends a month.

Calculate the cost of spending

One way to cut back on extra spending is to get clear on the consequences. Calculate how much an item really costs in terms of hours worked and how long it will take to pay back.

“If you learn to translate how many hours [you’re] going to have to work to buy something, our choices get really different,” Craigie says.

Let’s say you want to buy a $300 tablet. Use your after-tax income to determine how many hours of work are required to cover a $300 expense. Then, factor in how quickly you’ll be able to pay off that cost. If you don’t have the cash on hand and have to put it on a credit card, add up the interest that will build if you don’t pay it off immediately. That $300 tablet could turn into a $400 bill, or higher.

Work with your creditors

Even if you don’t enroll in a debt management program, you can call your creditors and ask for a lower interest rate or a repayment plan that works with your budget. If you have a history of on-time payments but have recently found yourself in a tough spot, explain your situation to your creditors and try to negotiate a modified payment schedule. Of course, they may not agree — but it doesn’t hurt to ask.

The bottom line

Tackling credit card debt will likely require some tough choices and a consistent commitment to changing how you spend.

“Money is a habit,” Craigie said. “If something goes wrong and we run out of money, we still eat the same foods, we still go to the same clothing stores, we still buy the same stuff, we live the same way, which means our expenses are the same.”


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