6 Ways to Pay Off Credit Card Debt
At the time of me writing this (August 2023), U.S. credit card debt has hit a record high! Collectively, Americans have over $1 trillion in credit card debt.
There are probably a lot of factors at play here. If we’re being honest, carrying credit card debt is pretty normalized in our society anyway. But on top of that, lately, inflation has been sky-high and interest rates have increased considerably. Life is just so expensive!
And credit card debt can take a toll on you. Your balance just keeps growing because of exceptionally high compounding interest. And it can be a frustrating, stressful, and even discouraging reality to face.
But there is hope! If you’re someone with credit card debt, getting intentional can make a big difference. A little strategy can go a long way!
Here are 6 ways to pay off credit card debt and get financially free:
1. Decide on a debt payoff method.
It’s so helpful to have a specific plan and approach. You can try…
The Debt Snowball Method:
You organize your credit card debts in order from the one with the greatest balance to the one with the smallest balance. Then, every month, you put as much money as you can towards the greatest balance. You pay the minimum payment on all other credit cards. You keep going until you’ve completely paid off the largest balance. Then you focus on the second largest balance in the same way. Keep going until all balances are paid off.
The Debt Avalanche Method:
Here, you organize your credit card debts in order from highest to lowest interest rate. Every month, you pay as much as possible towards the balance with the highest interest rate. Meanwhile, you continue to pay the minimum payment on all other cards. Once you’ve paid off the balance with the highest interest rate, you take the same approach with the card that has the second highest interest rate. Continue until all cards are completely paid off.
The Peace of Mind Method:
In my experience as a financial coach, there is often a significant emotional component to finances and money management. And sometimes, what’s most motivating and freeing is to address the things that simply weigh on you the most. That’s what inspired me to coin the Peace of Mind Method.
With this method, you organize your credit card debts in order from the one that causes you the most angst to the one you’re least concerned about. Then…you guessed it! You put as much money as you can towards the greatest one each month, while making minimum payments on all the rest. Once you’ve paid that first balance off completely, breathe a sigh of relief! Then, continue the same strategy, focusing on the next most angst-inducing credit card debt.
For a deeper dive into each of these methods, or to figure out which one best suits you, check out my blog post, “How to Choose the Right Debt Payoff Method for You.”
2. Create/maintain a budget.
“I’d pay it off, if I could. I just don’t have enough money.”
This is a common sentiment that I hear from clients. There’s a genuine desire to get credit card debt out of their lives. But they're convinced they don’t have enough money to make it happen.
Most times, though, they end up pleasantly surprised by how much money they have to work with.
That’s where budgeting comes in! When you budget, you have a plan, “on paper,” for your money each month. Budgeting helps you to see clearly how much you anticipate earning each month. It also helps you be intentional about how much you need/want to allocate to all the different things in life that cost money.
By doing this, budgeting gives you a very clear picture of what’s happening with your money. You don’t have to go by a vague feeling that you do or don’t have enough. You can see, plain as day, what you have to work with, and what could actually be going towards debt payoff.
Budgeting definitely helps you get strategic with debt payoff. And budgeting consistently can help you to pay off your debt even faster.
3. Get strategic about spending.
As you budget, you’re also able to recognize areas where you may be spending more than you mean to. And that money could be better spent on debt payoff. In general, with a budget, you’re in a great position to determine and organize your spending priorities.
Look at areas of spending where you could cut back in order to repurpose that money and pay off your credit card debt. There may even be areas of spending that you can eliminate completely for a while. This could be something like a streaming subscription or dining out. It all really depends on how aggressively you want to eliminate credit card debt.
And I want to encourage you by pointing out that any cutbacks you make are only temporary (unless you choose for them to be permanent). The goal is to pay off your credit card debt as quickly as possible. But once you’ve done that, there’s room to go back to spending on other things.
Do what you can to get out of debt, so you’re free to spend more on the things you love without the daunting presence of growing credit card debt in your life.
4. Build an emergency fund.
You need an emergency fund as a buffer against life’s unexpected, urgent (and sometimes costly) expenses. It could be anything from a car repair to a surprise medical expense.
When an emergency happens, it’s important to have the cash you need to cover it. Without it, you run the risk of relying on a credit card to get yourself out of a bind. And that’s obviously counterproductive to your debt payoff plan. An emergency fund protects you from backtracking as you pay off your credit cards.
Typically, $1,000 is a good starting place for an emergency fund while you focus on paying off debt. That’s enough to cover a relatively expensive emergency (or several less expensive ones).
And then, once you’ve paid off your debt, it’s a good idea to beef up your emergency fund. The rule of thumb is to have 3 to 6 months of essential living expenses saved up. That way you’re super prepared for a (very) rainy day!
5. Consider a balance transfer.
Some credit cards offer 0% interest on balance transfers for up to 21 months. So, it could be very helpful to transfer your current credit card debt to a balance transfer credit card. Then, you have up to 21 months (this time frame varies) to pay off your balance, interest-free. This option could save you a significant amount of money!
BUT, I have to mention this important disclaimer:
This option is only a good idea if you have a solid payoff plan. You should be committed to paying off the balance consistently and aggressively enough that you’ll finish paying before the 0% interest window closes.
For many balance transfer credit cards, once that 0% interest time frame ends, an especially high interest rate kicks in. So, if you still have a balance to pay off once that high interest rate sets in motion, you could be paying even more in interest than you were on your original credit card.
6. Consider debt consolidation.
Debt consolidation is, essentially, when you have multiple debts (in this case, multiple credit card balances) rolled into one loan. Many banks and lenders offer this option.
Debt consolidation can be helpful because…
1. You can save money if your consolidation loan has a lower interest rate than your credit cards
2. It simplifies debt payoff because you have just one payment to make
BUT, I’ve got a few important disclaimers again.
Debt consolidation loans can come with various fees (i.e. origination fees, balance transfer fees, annual fees, etc.). And these fees can make the loan costly enough that you don’t save much (or you even spend more). So, you should read the fine print and choose a debt consolidation loan with little to no fees.
Something else to consider is the interest rate on the debt consolidation loan. If your credit score isn’t high enough to qualify you for a lower interest rate, consolidating may not be worth it.
You should also pay attention to the term length of the consolidation loan you’re considering. If your payments are spread out over a longer amount of time, in the end, you could end up paying more. That’s because there is still interest accruing on the loan. So, even if it’s a low interest rate, if it’s accruing over a longer period of time, that could cost you.
With all that being said, it’s important to make sure that debt consolidation is right for you.
And just like with the balance transfer option mentioned above, you’re going to need a plan and discipline in order to make it work. If you set yourself up for success, debt consolidation can be helpful.
Want to pay off your debt faster? It could help if you found some extra money in your budget! Get your free download of 9 Ways to Find More Money in Your Budget.
Conclusion
Credit card debt can add up quickly! And the task of paying it off can feel overwhelming.
But don’t despair! Having credit card debt is not a hopeless reality. The 6 strategies above can help you regain control of the situation, eliminate credit card debt, breathe easy, and live more financially free!
Which of these strategies do you find most helpful for credit card debt payoff? Share in the comments below!
