Credit card debt can be challenging to tackle. There’s the stress of possibly mismanaging it, accruing high-interest charges and late fees or potentially decreasing your credit score. Fortunately, learning about strategies to pay off your credit card debt, familiarizing yourself with common pitfalls in debt repayment and practicing smart spending habits can help you find credit card debt relief. MoneyGeek explores these topics and more in this comprehensive guide.
Expert Guide to Paying off Credit Card Debt
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Key Takeaways
Start by listing all your debts to prioritize payments and track progress effectively.
Use the snowball or avalanche method to tackle your credit card debt strategically.
Debt consolidation or balance transfer cards can help simplify payments and reduce interest rates.
Debt relief options, such as nonprofit counseling and government programs, can provide assistance for managing overwhelming debt.
Setting a budget and avoiding only minimum payments are crucial to speeding up debt repayment.
Common Roadblocks to Paying off Credit Card Debt and How to Navigate Them
A credit card can be a good payment option—it can improve your credit and provide some theft protection. However, improper use can lead to debt and harm your finances, which goes beyond late fees and a drop in your credit score.
While working on getting out of debt can be stressful and affect your overall well-being, identifying your roadblocks can help you find a pathway forward.
Overcoming Hurdles in Debt Repayment
Dealing with credit card debt can be challenging, including tracking due dates, determining how to pay down debt with other bills, and planning for unexpected expenses. When carrying credit card debt, it can be difficult to know where to start. However, you can get out of debt faster by starting with small, strategic steps.
Not Knowing Where to Start
The first step to financial freedom is listing your debts. If you have multiple creditors and find paying them all difficult, take care of one debt first and make minimum payments on the others. If you have extra money, use it for debt repayment. Focus on the next debt on the list as soon as you finish one, and so on.
KNOW HOW MUCH YOU OWE
Knowing your debt will help you determine how much you need to pay on each date. The following pages may help:
- AnnualCreditReport.com: Most credit card issuers report their borrowers’ account details to at least one major credit bureau. You can find open, closed and delinquent accounts in your credit report. Your report may not reflect some debts because it isn’t updated in real-time.
- MoneyGeek’s Compound Interest Calculator: Understand how compound interest works. Estimate how much you will owe in interest on your credit card debt.
Not Making Enough Money to Pay Down Your Debt
If your income isn’t enough to meet your monthly payments, it’s time to find ways to get more money. There are two options: decrease your expenses and increase your income.
Determine aspects where you can save money, such as rarely used subscriptions. If possible, consider getting a part-time job while you’re still in debt.
LIVE WITHIN YOUR MEANS
Achieving financial independence may require a few sacrifices. Learn how better to manage your money with the help of the following:
- MoneyGeek’s How to Live on a Low Income: Find various resources providing aid to low-income earners and get tips on how to lessen the burden of living on a low income.
- MoneyGeek's Easy Guide to Budgeting: This guide explains the basics of budgeting and the many different ways you can approach the task.
- MoneyGeek's Guide to Avoiding Credit Card Interest: Learn strategies to avoid accruing interest on your credit card.
Having Difficulties in Tracking Payment Due Dates
Failure to make timely payments can further increase your debt. Take note of your due dates. You can set up alarms on your phone or highlight the dates on your calendar. Setting up automatic payments may also help.
ORGANIZE YOUR BILLS
Consider using a bill calendar or download a mobile app to keep track of your payment due dates.
- CFPB’s Bill Calendar: Download the Consumer Financial Protection Bureau’s free bill calendar and keep track of your monthly dues.
- MoneyGeek’s Expert Curated Budgeting and Savings Tools: This list includes budgeting and savings tools you can use in managing your finances. It also provides tips on how to choose the right app.
Unexpected Expenses
Unexpected expenses can dent your finances. That’s why having an emergency fund as a safety net is essential.
If you have an emergency fund, you can use it to cover any unexpected expense while still paying off your credit card debt. If you don’t have one, consider reviewing your priorities to determine where to use your money best.
Choosing the Right Credit Card Payoff Strategies
The best debt repayment method may vary per person. Consider your financial situation and needs when choosing a payoff strategy.
While paying off debt, avoid adding more debt. If possible, put as much income as possible towards your repayment.
Snowball Method
Biggest Strength
Pay down easy-to-handle debt sooner.
Who It’s Best For
Best for people who have credit cards with similar interest rates.
The debt snowball method is relatively simple but counterintuitive: you pay off the smallest debt first, then the second smallest, and so on. Like rolling a snowball that gets larger as it rolls, the consumer begins by paying a small debt, gradually working up to the bigger-sized undertaking, empowered by momentum.
EXAMPLE OF SNOWBALL METHOD
Let’s say you have three credit cards with balances of $7,000, $5,000 and $2,500. You start your repayment by paying off the $2,500 balance first. After this, you focus on the $5,000 balance and then the $7,000 balance.
Avalanche Method
Biggest Strength
Pay less over time.
Who It’s Best For
Best for borrowers whose credit cards have different interest rates.
The debt avalanche method — sometimes called the debt ladder— focuses on interest rates. You pay off the balance of your credit card debt by tackling the debt with the highest interest rate first, then the debt with the second-highest interest rate, and so on. From a purely financial perspective, this strategy is the most efficient way to pay off your debt quickly while paying the least interest.
Example of Debt Avalanche Method
Start by listing your credit card debts. Rank them in order of interest rates, with the highest on top of the list. Here’s an example of how your list should look like:
Credit Card | Balance | Interest Rate | Payoff Order |
|---|---|---|---|
A | $7,000 | 15% | 1 |
B | $2,500 | 12% | 2 |
C | $5,000 | 0% | 3 |
Putting the credit card with 0% annual percentage rate (APR) last will allow you to focus on your other debts without worrying about high interest over time.
Debt Consolidation
Biggest Strength
Single payment and easy to track.
Who It’s Best For
Best for those who have multiple credit card debts with high-interest rates.
If you have multiple credit cards with different rates, limits and due dates, it can get overwhelming. Consolidating your credit card debts into one loan may make it easier to keep track of payments, and you may be able to lower your interest rate, but your debt principal doesn't change.
EXAMPLE OF DEBT CONSOLIDATION
If you have multiple loans with high-interest rates, debt consolidation may be right for you. For example, you have a $14,500 debt across three credit cards with high APRs. Taking out a debt consolidation loan that covers all your debt with a seven-year term and 5% APR will allow you to lower your monthly payments.
Balance Transfer Credit Card
Biggest Strength
Find lower interest rates and consolidate your debts.
Who It’s Best For
Best for multiple credit cards with outstanding balances.
A balance transfer credit card allows you to move all your credit card balances into one card account. Aside from reducing your monthly bills into one, you can also save on interest fees. Some credit card issuers offer 0% APR for a certain period, which can be advantageous for people trying to reduce their debts.
EXAMPLE OF USING A BALANCE TRANSFER CARD
For example, you consolidate your $14,500 debt into a balance transfer card with a 0% APR for 20 months in exchange for a 5% fee. Your new total will be $15,225. If you can pay $762 monthly for more than 20 months, you could likely pay off your debt without interest.
Common Pitfalls to Avoid When Paying Down Credit Card Balance
Many people make mistakes handling their credit cards. Sometimes, the cardholder faces more debt than they’re prepared for. Knowing the typical traps you should avoid when paying down your credit card balance will help you better manage your debt.
Missing credit card payments
Failure to pay your credit card balance can lead to late fees, higher interest rates or damage to your credit. Consider setting up automatic payments to avoid missed or late payments.
Making only minimum payments
Although it’s okay to make minimum payments occasionally, doing it all the time can lead to longer repayment periods and higher debt due to the interest. If possible, try to pay your total balance monthly.
Dealing with multiple balances at once
It may seem like a good idea to pay off all your debts. That may help if you can afford to make multiple payments. However, if you’re struggling to meet your monthly dues, consider using the snowball, avalanche or consolidation method.
Money Habits to Getting Out of Debt Faster
Seeing a huge amount in your credit card balance can be stressful. But taking charge of your finances is important to avoid getting overwhelmed by your debt.
Taking extra steps to keep things under control can help you reduce your debt faster. You can start by developing healthy habits, such as budgeting and getting professional help.
1
Set up a budget
Establish a budget based on your financial situation and responsibilities. This will help you stay on track and avoid unnecessary expenses.
2
Stop using credit cards
If overspending is an issue, it’s best to stop using credit cards. Switch to cash to ensure that you don’t go beyond your budget.
3
Set a target
Having financial goals aside from paying off your debt is also important. Having other financial goals can inspire you and keep you motivated.
4
Seek help
You should know when to get help. There are online groups where people share their debt journey. You can also contact professionals who can provide financial advice suitable for your situation.
From Debt to Freedom: Real-Life Credit Card Debt Success Stories
Credit card debt is a problem millions of Americans face. It can lead to various consequences, making the whole ordeal even more stressful. That said, it’s not impossible to overcome such a challenge. Here are some individuals sharing lessons they’ve learned and a few tips to help you deal with credit card debt.
- What’s the biggest challenge you faced when paying off your credit card debt? How did you overcome it?
- What lessons can you share with people struggling to pay off their credit card debt?
- What’s the best tip/advice you have received during your journey from debt to financial freedom?
Jake HillCEO of DebtHammer
Dennis ShirshikovStrategist at Awning.com
HOW TO STAY DEBT-FREE
Once you’re debt-free, your next step is to ensure you’ll stay that way. Start building an emergency fund, which will help you with unexpected expenses. Generally, you should have enough to cover at least three to six months’ living expenses.
You can use MoneyGeek’s Cost of Living Calculator to estimate how much money you may need to set aside for your emergency fund.
How to Find Relief from Credit Card Debt
Utilizing available resources can help you deal with a huge credit card debt. If you can’t afford to make payments, you can turn to debt relief programs or credit counseling agencies. You can find government and nonprofit organizations offering assistance. If all else fails, you may also consider filing for bankruptcy.
Nonprofit debt relief
Some nonprofit agencies offer debt management programs, which could help you reduce your debt without the need to take out a loan. Before doing business with a debt relief service provider, check with your state Attorney General or consumer protection office.
Government debt relief
Find government programs to help low-income households manage their finances. Some grants provide money that you can use for living expenses. You can use your income to pay off your credit card debt.
Military debt relief
Members of the military and veterans may get lower interest rates on their credit card debts because of the Servicemembers Civil Relief Act (SCRA). You can find qualification requirements by contacting your local Armed Forces Legal Assistance office.
Credit counseling
Credit counselors can help you develop a budget and manage your debt. They usually look at your financial situation and work with you to develop a long-term plan to get you back on track. You can search the Department of Justice's list of approved credit counseling agencies here.
Bankruptcy
If all else fails, you may have to consider filing bankruptcy. Bankruptcy can help you start fresh, wiping out your credit card debt and protecting your assets from creditors. If you decide to go this route, hire an experienced bankruptcy attorney.
What Happens When a Credit Card Payment Is Overdue
Not paying off your credit card debt has various consequences. The extent depends on how long you haven’t been making payments.
For instance, late payments for 30–120 days will affect your credit score. If you fail to repay your debt in six months, the bank will charge off your account and consider it a loss. This means you no longer owe them money. However, this will be recorded in your credit report for the next seven years, alerting other lenders and issuers.
Number of Days Overdue | What Will Happen |
|---|---|
30 days late |
|
60 days late |
|
90 days late |
|
More than 90 days late |
|
Warning Signs of Excessive Credit Card Debt
Credit cards have many advantages. They’re convenient to use and help build credit. However, having too high of a balance can hurt your financial well-being. The best practice is to keep your credit utilization ratio (your revolving credit balance divided by your revolving credit limit) under 30%.
Below are some warning signs to help you identify if you have too much credit card debt.
Borrowing to pay off other debts
Taking out a loan can help you consolidate your debts. But this should only be used as an emergency solution. If it becomes a practice, you may be in trouble.
Missing or making late payments every month
If it’s difficult for you to keep up with your monthly payments, even the minimum amount due, you’re already dealing with excessive debt.
Getting calls from creditors
Creditors will contact borrowers for late payments. If you’re getting the call from a debt collection agency, your credit card issuer may have already sold off your debt.
Being denied credit
Credit card issuers and other lenders check borrowers' creditworthiness to determine if they can repay their debts. If you find it hard to take out a new loan or credit card, excessive debt may be the cause.
Having no savings
If you don’t have any money saved or are struggling to set aside money for your emergency fund, you may be spending more than necessary.
Expert Insight on Paying Off Credit Card Debt
Determining the best way to pay off credit card debt can be confusing. Understanding how credit card debt works are essential to avoid making costly mistakes. MoneyGeek spoke with some industry leaders to share expert insight that may help you make well-informed financial decisions.
- What mistakes should a person avoid when managing credit card debt?
- What financial management tip can you share with individuals struggling to eliminate their credit card debt?
- When is credit card debt good? When is it considered bad debt?
- How can an individual determine the best pay-down method/s to manage their credit card debt effectively?
- What strategies or tips can you share with individuals who want to get out of credit card debt?
Annie HansonFinancial Coach and Owner of Mindfully Money
Todd ChristensenAccredited Financial Counselor and Education Manager, Money Fit by Debt Reduction Services, Inc.
Kari LorzCertified Financial Education Instructor and Founder of Money for the Mamas
Additional Resources
Many resources are available to help individuals deal with credit card debt. MoneyGeek compiled a list of valuable resources you may find helpful.
- Consumer Credit Counseling Services (CCCS): Get free debt counseling or find a financial coach to help you create a debt management plan.
- Debtors Anonymous: Get inspiration from stories of people who have bounced back from debt. Find meetings you can attend as you recover from your debt.
- Federal Trade Commission: Find out the different risks of dealing with debt settlement companies. Know the red flags you should watch out for.
- Financial Counseling Association of America: Start your journey to financial freedom using the FCAA’s Debt Freedom Tool. You can also contact an FCAA member to connect with a certified credit counselor.
- Financial Therapy Association: Find a therapist who can help change how you view your finances and behave differently with money.
- Legal Services Corporation: Get legal help by searching through the LSC’s database or interactive map tool.
- National Association of Consumer Bankruptcy Attorneys: Find a bankruptcy lawyer using the NACBA’s online search tool.
- National Endowment for Financial Education: Find courses, articles and tips to help you take control of your finances and avoid excessive debt.
- National Foundation for Credit Counseling: Connect with a credit counselor, get expert advice or access financial management tools and calculators.
- Consumer.gov: Learn about getting out of debt, different credit counseling options, debt collection and debt settlement plans.
- USCourts.gov: Expand your understanding of bankruptcy — the different types and the process of filing.
About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.