Woman paying credit card bill
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If your credit card debt isn’t already keeping you awake at night, it could easily become a major issue if you let it get away from you. With the average credit card interest rate now over 17%, having a payment plan is essential.

Some debt repayment strategies are much riskier than others, however. Before you get started, make sure you identify which ones to stay away from.

6 credit card payment plans to avoid and some alternatives

1. Only making minimum payments

If you want to get rid of credit card debt, only paying the monthly minimum is the slowest way to get there. It’s also the most expensive.

If you owed $10,000 on your card at 17% interest and decided to pay only the minimum until your debt was gone, it would take you 340 months — or more than 28 years — to do it. During that time, you would pay about $13,600 in interest payments.

Alternative method

The debt snowball repayment plan helps you attack your smallest credit card balances first, while making the minimum payments on the rest. As you pay off the smallest balances, you can “snowball” the extra money in your budget to pay your next smallest debts, and so on. This allows you to pace yourself, while making progress.

2. Taking money out of your retirement account

Using retirement savings to pay off credit card debt is risky and expensive. Not only are you putting your future financial security on the line, but you risk owing taxes to the IRS if you withdraw tax-deferred money from certain retirement accounts. Additionally, you may incur a 10 percent penalty if you withdraw funds too early.

Alternative method

Instead of borrowing against a 401(k), consider temporarily stopping your contributions to retirement. Funnel that money toward your more egregious credit card balances, until they become more manageable.

3. Depleting your emergency fund

A Bankrate study from earlier this year noted that 3 in 10 Americans have more credit card debt than emergency savings. It’s tempting to use the cash in your emergency fund to supplement credit card payments. But it can go faster than you think. And even though it might be stressful, having credit card debt is not an emergency. Without the safety net of your emergency fund, one unexpected life event can send you down a real financial hole.

Alternative method

If you feel compelled to dip into your emergency savings, don’t wipe it out completely. Use a small portion, along with other available funds as a stopgap until you formulate a consistent payment plan.

4. Borrowing against your home equity

There’s some debate as to whether debt consolidation is a good idea. While there are some instances where people have used their home equity to help pay high interest debts, the option is not available to everyone. Typically, you’re only able to borrow up to 85% of your home’s value via a first loan and a second mortgage.

When you take out a home equity loan, you’re putting your home up as collateral. So you risk foreclosure if you can’t repay.

Alternative method

A personal loan can be a viable alternative, since it lets you borrow money without putting up your residence as collateral.

5. Skipping a mortgage payment

Skipping a mortgage payment should never be high on your list of options for paying down credit card debt. While it might seem harmless, since you likely won’t feel the immediate effects, it’s not a habit you want to risk making with your largest asset.

Alternative method

Consider areas where you can cut back and save money every month. Estimate an amount that you can add toward your credit card debt, and work out some debt payoff timelines to compare.

6. Taking out the “wrong” type of loan without a plan

Borrowing more money can be a practical solution when you owe credit card debt, but only if you choose the right type of loans that don’t put you at risk.

This means, avoiding options like payday loans, title loans or loans against a car – as these are incredibly costly over the long run.

Alternative method

A balance transfer credit card can help you pay down debt faster, since you’d pay zero percent APR for 12 to 21 months. Some balance transfer cards have a balance transfer fee of 3 percent or 5 percent, but you can still save money on interest by transferring high interest balances paying off as much debt as you can.

Bottom line

No matter what credit card debt payment strategy you choose, keep in mind that maintaining responsible credit card habits is most important. Once you avoid harmful debt payment plans, work to avoid unmanageable debt, altogether.


Still have questions about consolidating your debt with a balance transfer card? Browse Bankrate’s complete balance transfer catalog for everything you need to know before applying for one of the year’s top balance transfer offer.