How To Pay Off Credit Card Debt: 10 Ways To Be Debt-Free
Miranda Crace6-Minute Read
UPDATED: October 12, 2023
Outstanding credit card debt remains prevalent in America, often as a result of circumstances – such as accidents, job loss and medical bills – that are beyond one’s control. However, you can take action to eliminate your debt and save yourself not only stress, but also money in interest and fees.
Let’s take a look at how to pay off credit card debt in a number of ways and find the path that’s best for you.
Why Paying Off Credit Card Debt Is Important For Your Finances
Credit cards – like all revolving debt – give you a credit line to withdraw from and pay back over time, with a minimum payment typically due every month. As your balance grows, so will the amount you owe in interest. This can put your personal finances at risk.
Annual percentage rates (APR) for credit cards today average close to 28%, so the higher the balance you carry, the more interest will be added to what you owe. Having a significant amount of outstanding debt can hurt your chances of qualifying for loans such as mortgages, auto loans and personal loans. Even worse, late or missed payments can bring down your credit score.
The amount you’re putting toward your monthly payment on your credit card can go into savings or toward more beneficial purchases once you’re able to pay off your credit card debt.
How To Get Out Of Credit Card Debt
If you feel stuck in credit card debt, consider a new repayment plan. From targeting debts with the highest interest rate to making extra debt payments, a number of strategies are available for paying down your balance.
Consider the following ways you can be debt-free, even though it won’t happen overnight.
1. Try The Debt Snowball Method
There are two common debt-payoff strategies. One is the debt snowball method – paying off the credit card with the smallest balance first. Once that’s done, you then make headway on the card with the next smallest balance.
Here’s how the snowball approach works: Let’s say you have three cards with balances of $200, $500 and $1,000. Every month you make an extra $100 in payments on your cards. With the debt snowball method, you start with the card with the $200 balance, then move over to the card with the $500 balance and finish with the $1,000 card.
The major perk to this strategy is that you enjoy early wins that can keep you motivated as you work your way up to your highest balance.
2. Try The Debt Avalanche Method
The other common debt repayment strategy is the debt avalanche method. With the debt avalanche method, you start with the balance featuring the highest APR or interest rate and you then work your way down to the payment with the lowest rate. The major benefit of this is that you’re saving money by paying less in overall interest fees.
So, if you have three credit card balances and the APRs are 25%, 20% and 15%, respectively, you’d start with the credit card that had the highest interest rate – 25%. Once that’s taken care of, work on paying off the card with the 20% APR, and then 15%.
Regardless of what you owe, both the snowball method and avalanche method will help you organize your debt and prioritize payments. With either method, you’ll be making the minimum payment on all your other cards. That way, you continue to build your credit and won’t incur any late or missed payment fees. By making just the minimum payment, you’ll pay more in interest, however.
3. Consider A Debt Management Plan
You can also better organize your finances with what’s known as a debt management plan. With a debt management plan, you typically work with a third-party agency, which acts as the go-between for you and the credit card companies.
Instead of making individual monthly payments for each card, you only need to make a single payment to the agency. The agency might also be able to lower your interest rate, and by spreading out your payments for a longer duration, the amount you pay each month.
It’s possible that not all credit card companies will agree to work with your debt management plan, however. Depending on your card company, you may have to pay service fees.
4. Get A Debt Consolidation Loan
When you consolidate your debt, you’re combining all your credit card liability into a single loan. A personal loan can be a great option for paying off your credit card and consolidating your debt. By doing so, you can lower the amount of your monthly payments on a fixed timeline (often 36 or 60 months) and make only one monthly payment with a fixed-interest rate.
When getting a personal loan, the amount you can borrow and the interest rate you’ll pay typically depend largely on your credit score, so you’ll want to check your credit report to make sure you’re in a good spot to apply.
5. Use A Balance Transfer Credit Card
Another method of debt consolidation is a balance transfer credit card, where you pay off your outstanding credit card balance and replace it with a single balance on the new card. A creditor or lender will often offer 0% APR for an introductory period, typically 6 – 21 months, where you can make interest-free payments toward your balance.
If you still have a balance left after the introductory period ends, your payments will be subject to your new card’s interest charges. Only consider a balance transfer if you’re confident you can pay off your full balance within the 0% period.
6. Update Your Monthly Budget
When you’re trying to pay off all your debt, it can help to make a budget and cut back on your spending. By reducing your monthly expenses, you could free up some extra cash, which could go toward your debt.
Start by tracking your spending and seeing where you can cut back on nonessential expenses, such as eating out, coffee or entertainment. See what you have left over after narrowing down your essentials (e.g., mortgage/rent, utilities, groceries, student loans) and calculate what you can put toward your credit card debt. Make sure you leave enough aside for emergencies, too.
7. Find Ways To Earn More Money
It’s possible, in various ways, to earn some extra money through a side hustle. Depending on your interests and how much time you can devote to taking on additional jobs, you could earn money as a ride-share driver, by dog walking or pet sitting or by delivering food. Or you could set up an online store, sell unwanted items on eBay or sell baked goods or crafts at a local farmers market.
You might also see if you can up your earning potential at your day job. See if you can work overtime or make a case to your boss for higher pay.
8. Put ‘Bonus’ Cash Toward Your Debt
Whenever you come across extra money, such as a cash gift for your birthday or a holiday, or you get a bonus at work, put some of it toward paying off your credit card debt.
9. Team Up With An Accountability Partner
Don’t be afraid to ask for a little help with credit card debt. Partner up with someone who’s also paying off debt. Commit to weekly or monthly check-ins to discuss how you’re both progressing. If you’re not hitting your goals, your partner can hopefully offer encouragement and support. When you hit a checkpoint, consider celebrating together.
10. Don’t Take On More Credit Card Debt
Piling on more credit card debt to your existing balance not only means it’ll take longer to dig your way out, but it also can feel downright discouraging. If possible, lock those credit cards away for now. Or see if you can momentarily pause your accounts so you don’t add to your balance.
FAQs On Paying Off Credit Card Debt
There’s always more to know about paying off credit card debt. Here are the answers to some frequently asked questions about this topic.
What’s the best way to pay off credit card debt?
The best way to pay off credit card debt really depends on your current situation and what your monthly budget allows. More popular methods include the avalanche method and debt consolidation loans, which typically involve lowering your overall APR.
What’s the fastest way to pay off credit debt?
If you’re looking for how to pay off credit card debt fast, the debt snowball method can give the appearance of quicker progress as you pay down your smaller balances. Overall, though, paying off your credit card may take some time if you have a large balance.
What’s the average credit card debt?
According to the Q2 2023 Quarterly Credit Industry Insights Report from TransUnion, Americans carry an average of $5,947 in credit card debt. That’s the highest average in a decade. Factors like age, location and income, among others, affect a person’s debt.
What’s considered really bad credit card debt?
Your credit utilization ratio can tell you if your credit card debt is getting out of control. A ratio of 30% or higher is widely considered to be a sign that you should consider ways to pay down your current balances.
While getting out of credit card debt is no easy feat, you have it in your power to make serious headway and get it paid off. Take a look at your current situation to determine your best options. Also, don’t be afraid to ask for help.
If you’re thinking of consolidating your debt, start the process today with a personal loan application with Rocket LoansSM.
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