How to pay off credit card debt

Summary

•  Write down all your debts to review the interest rates, outstanding balance and monthly payments so you can create a realistic payoff plan.
•  You can utilize one of the two most common repayment strategies, debt avalanche or debt snowball to help pay off credit card debt.
•  You can take simple steps to manage your expenses like setting up auto pay or reducing non essential spending.

If you’ve accumulated some credit card debt and are looking to pay it off once and for all, you’re not alone. Tackling debt repayment is a financial priority for 42% of Americans.¹ The good news is that with a little planning and focus, you can be well-positioned to tackle that debt.

Tip #1: Get the details on paper

The first step to managing your credit card debt is to get the details on paper. Write down each of your debts, being sure to include:

• Interest rate
• Outstanding balance
• Minimum monthly payment

Then, create a list of your income and other expenses. Calculating your income minus expenses (including minimum debt payments) will help you understand how much extra money you have each month to put toward paying off debt more quickly.

These numbers can serve as the foundation for creating a budget, which allows you to design a realistic plan to pay it all off.

Tip #2: Create a payoff plan

The next step is to create a payoff plan. This should outline how much you can realistically pay toward your credit card debt each month and how long it’ll take to achieve your debt repayment goals.

Let’s say you’ve opened credit cards at five of your favorite stores, and you’re carrying balances on all of them. Here are two popular debt repayment strategies that can help you pay them off.

Debt avalanche

The debt avalanche is a strategy that has you pay off the card with the highest interest rate first. While you focus on putting as much as possible toward your highest-interest debt, you’ll continue to make the minimum payment on your other cards. Once the first debt is paid in full, you’ll move on to aggressively putting money toward the card with the second-highest interest rate, and so on, until all debts are paid.

The big appeal of the debt avalanche method of debt repayment is that it enables you to save the most money over time since you’ll be knocking out the debts with the higher interest rates as fast as you can.

Debt snowball

The debt snowball strategy has you pay off the card with the smallest balance first. The idea behind the snowball is that quickly paying off a smaller debt can give you the psychological boost you need to keep going. Similar to the avalanche, you’ll continue to pay the minimum on all other debts as you prioritize the smallest one. Once it’s paid, you’ll move on to the next highest balance until all debts are paid.

You can also look into credit card debt consolidation, which rolls all your credit card bills into one lower-interest monthly payment. The amount you owe will stay the same, but you’ll pay less in the long run since you’ll be paying less interest.

Whatever strategy you choose, always try to make more than the minimum payment each month.

Tip #3: Manage expenses and save money

Once you’ve listed all your debts and come up with a payment plan that works for your budget, it’s time to automate your system and look for ways to cut expenses and save some extra cash to lower your balance.

• Set up automatic payments: The easiest way to ensure you’re making credit card payments on time is to automate them. Be sure to set up minimum payments on all cards as you prioritize your most important debt according to your payoff plan.
• Use extra funds wisely: Commit to using a percentage of an unexpected bonus or gift from a loved one to pay down debt. The money from a windfall could help you make a big dent in your debt balance with no additional effort.
• Cut back on non-essentials: Look at what you’re spending on dining out, shopping, and other non-essentials, then commit to cutting back by a certain percentage, like 10-20%, each month. Trying to cut expenses too quickly could lead to splurging out of frustration.

 

Make every payment count

Above all, make every effort to avoid going into more debt while you’re paying it down. Paying off credit card debt takes time and effort, but it’s a fundamental step toward financial security and freedom.

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