Climbing out of the black hole that is credit card debt can feel insurmountable, especially if the total amount owed is high and you’re only making minimum payments each month. The problem with credit card debt is that it can quickly spiral out of control. When you fail to pay off a balance in full, you not only start incurring interest charges but also get charged interest on your unpaid interest. This is how you end up with the kind of credit card balances that feel impossible to pay off.
Many people want to know how to pay off credit card debt. Some people assume they’ll be in credit card debt forever. However, it is very possible to pay off your credit card debt in full—and you might be able to get it done faster than you realize. Here’s your step-by-step plan to help get out of credit card debt, as well as tips and tools to keep you on track.
7 steps to get out of debt
If you want to get out of credit card debt, you’re going to need a solid plan. Follow these steps to face down your debt, set up a payment plan and pay off your credit cards as quickly as possible.
1. Know how much you owe
The first step in paying down your credit card debt is knowing exactly how much you owe. Maybe you’ve been avoiding this number, or maybe you already have a pretty good idea of how much debt you’re facing. Either way, it’s time to look at your credit card balances and add up everything you’re going to need to pay off.
2. Check what you’re paying in interest
As you check your credit card balances, you should also check how much interest you’re being charged on each debt. This information is included in your monthly credit card statement. Once you know your credit card interest rates, rank your credit card debt from low interest to high interest. You’ll want that information when you decide which debt to tackle first.
3. Create a budget
Now that you know how much credit card debt you owe and how much interest each credit card is charging, it’s time to look at how much money you’re currently earning—and how much of that money can go towards debt repayment.
Yes, this means setting up a budget. If you don’t already have a budget, we’ve got a Home Budget Calculator to help you get started. There are also many popular budgeting apps that can help you organize your finances.
Ultimately, you’re going to want to know how much of your current income needs to go to basic living expenses such as housing and groceries, how much of your income should go towards discretionary expenses like dining out and entertainment, and how much money you have leftover to put towards your debt.
4. Put as much money toward your debt as possible
Your goal, until your credit card debt is fully paid off, is to put as much money toward your debt as possible. Use your budget to guide you, and try to avoid those “just this once” temptations that push you over your budget. (If your budget allows you to have two restaurant meals per month, for example, don’t tell yourself that you’ll have three “just this once.”)
If you look for ways to either cut back on your spending or earn more money, you can put even more money toward your debt. Remember, every dollar you put toward debt now will save you money in the long run, since you’ll spend less time paying interest on your credit card balances.
5. Use a debt calculator to learn how to save time and money
Want to know how to pay off credit card debt as quickly as possible? The secret is putting as much money as possible toward your debt every month. Use Bankrate’s credit card debt calculator to learn how much time and money you can save by increasing your debt payments.
Let’s say you have a $3,000 balance on a credit card with a 17 percent interest rate. If you put $100 towards that debt every month, you’d pay off your balance in 40 months and pay $934 in interest. If you instead pay $110 each month — just $10 more — you’ll eliminate that debt in 35 months and you’ll only pay $818 in interest. If you can put $200 towards the debt every month, you’ll get it paid off in only 17 months, paying a total of $396 in interest.
Run the debt calculator with your current credit card balances, interest rates and budgeted payments. Then, look at how much time you’d save by putting $10 toward your debt every month—and how much money you’d save in interest.
6. Budget using the snowball or avalanche method
The snowball method and the avalanche method are two of the best ways to pay off credit card debt. Both methods involve making the minimum payments on all but one credit card so that you can use the bulk of your debt repayment funds to pay off a larger chunk of the balance on that one card. Once your first card is fully paid off, you’ll repeat the strategy with another credit card—and so on until all of your cards are paid off and you are free of debt.
With the snowball method, you start by paying off the card with the smallest balance first. This method works because you quickly get the emotional boost of paying off a credit card in full, which motivates you to keep going.
The avalanche method, on the other hand, focuses on paying off the card with the highest interest rate first. This method works because you get the satisfaction of knowing that you are eliminating your high-interest debt as quickly as possible.
7. Don’t create new debt
As you work on paying off your credit cards, don’t create new debt. Stick to the budget you created and don’t charge new balances to your credit cards. This can be difficult, especially when you’re used to putting purchases on credit without thinking about it, but stay focused on your goal.
Yes, unexpected expenses may come up. Yes, you’re going to be tempted to spend a little extra money on yourself or your loved ones “just this once.” Don’t let holiday credit card debt or vacation spending derail your debt-repayment plan. Keep making those monthly payments and work on shrinking your credit card balances, not adding to them.
Is debt consolidation right for you?
Many people don’t realize that one of the best ways to pay off credit card debt is to consolidate it. Debt consolidation allows you to combine your credit card debts into a single monthly payment, and many debt consolidation loans and balance transfer credit cards come with lower interest rates than you might be paying on your credit card debt. In fact, some balance transfer cards give you an introductory 0 percent APR on your purchases for up to 18 months.
If you want to know whether debt consolidation is right for you, Bankrate has a guide to debt consolidation to help you consider your options. You can also use Bankrate’s debt consolidation calculator to find a debt consolidation plan that fits your needs and your budget.
If you have credit card debt, consider these options
As you work toward paying off your credit card debt, here are a few options that can help reduce your interest rates, manage your monthly payments and get you that much closer to a debt-free life.
Open a balance transfer credit card
Balance transfer cards are the simplest way to consolidate debt and save thousands of dollars in interest payments. A balance transfer lets you transfer debt from one card to another, and balance transfer credit cards offer 0 percent introductory APRs to help you pay off your transferred debt, interest-free.
If you don’t pay off your debt before the 0 percent intro APR period runs out, you’ll have to start paying interest again. However, the top balance transfer credit cards typically offer a generous period of 0 percent APR, giving you plenty of time to put a dent in your credit card debt—or pay it off in full.
Take out a personal loan
Refinancing debt using a personal loan can be a great option. Personal loans often have significantly lower interest rates than credit cards, especially if you have good credit. This allows you to save money as you pay off your debt and can even help you pay off your debt more quickly.
If you’re interested in learning more about personal loans, Bankrate can help you determine which personal loans you pre-qualify for.
Consider debt counseling
If all else fails, it’s time to ask for help. Debt management and credit counseling programs pair you with experienced professionals who have proven methods to help with credit card debt.
There are few reasons to consider a debt management strategy to eliminate any substantial debt owed to credit card companies. Your debt management team might be able to help you contact your lenders and negotiate a lower interest rate on your debt. A debt management program can also help you consolidate several debts into one payment.
Look for a qualified nonprofit debt management program accredited by the National Foundation for Credit Counseling. Avoid for-profit debt settlement services as these companies often charge you money to handle tasks you could do on your own.
The bottom line
No matter how much you owe, it is possible to pay off your credit card debt in full. What are the best ways to pay off credit card debt? Start by taking a long, honest look at your spending habits. Keep making payments, tracking your balances and putting as much money toward your debt as possible. Consider using a balance transfer credit card or personal loan to consolidate debt and reduce your interest expenses. Avoid “just this once” spending temptations, and don’t get yourself into new debt as you pay off your old debt.