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How to Pay Down Credit Card Debt

How to Pay Down Credit Card Debt

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

Terms apply to American Express benefits and offers. Visit americanexpress.com to learn more. Citi is an advertising partner.

To pay down your credit card debt, you first need to choose the debt strategy that works best for you. Consider a balance transfer credit card or try the snowball method.

There are many ways to pay down credit card debt from simply making larger payments to consolidating your debt at lower rates. While some methods are better than others, the best option for you depends on:

  • Your budget concerns
  • Your credit score
  • Your access to other forms of credit

Before embarking on any payment method, create a comprehensive budget to see how much money you can put toward your debt each month.

The following methods are our suggested options for paying off debt:

Payoff method
Best if
Balance transfer credit cardsYou have excellent credit.
SnowballYou can make larger payments, but need ongoing motivation.
AvalancheYou can make larger payments and want to save on interest.
Personal loanYou have good credit and want structured payments.
Home equityYou are a homeowner with a lot of equity and good credit.
Debt management planYou are having problems making payments or have fallen behind already on payments.

Balance transfer credit cards

If you're a consumer with good credit seeking to save the most money on interest — and if you have the discipline to pay down debt in time — a balance transfer may be the way to go. Through a balance transfer, you can move your balances onto one card that offers 0% interest on transfers for a limited time, typically from six months to up to 21 months. This allows you to avoid paying interest and focus on eliminating the principal balance.

Pros

  • Consolidate all your debt onto a single card
  • Potentially pay off your debt interest-free
  • Some cards offer rewards and other perks and benefits

Cons

  • If you don’t pay off your balance in the no-interest period, you'll begin accruing interest at a high rate
  • You may not be approved for a credit line large enough to transfer all your debt.
  • You'll usually have to pay a fee of 1%-3% of the balance (typically less than the interest you would otherwise pay)
  • Requires a hard pull on your credit report
  • The balance transfer card will likely have a high utilization rate, which can seriously impact your credit score
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While balance transfers can save you a lot of money on interest, there are a few downsides. First, you'll need to have good credit to be approved (generally a 700 FICO score or higher), so not all consumers will have this option available to them. Consumers with high balances on several cards may also have a hard time being approved for a balance transfer card. Finally, the hard pull on your credit report that comes with applying for a credit card will temporarily reduce your credit score, which is something to be aware of.

You have several options when it comes to finding the best balance transfer credit cards. Here are a few of our favorites:

Balance transfer credit card
Balance transfer offer
Balance transfer fee
Required credit score
Citi® Diamond Preferred® Card
On Citibank's Secure Website
Intro APR of 0% for 21 months on Balance Transfers, then a 16.74% - 27.49% (Variable) APR appliesBalance transfer fee applies with this offer 5% of each balance transfer; $5 minimum.660 - 850
Citi® Double Cash Card – 18 month BT offer
On Citibank's Secure Website
Intro APR of 0% for 18 months on Balance Transfers, then an APR of 17.74% - 27.74% (Variable) appliesThere is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. A balance transfer fee of 5% of each transfer ($5 minimum) applies if completed after 4 months of account opening.660 - 850
Chase Freedom Flex℠
On Chase's Secure Website
0% Intro APR on Balance Transfers for 15 months, After the intro period, a variable APR of 17.99% - 26.74% VariableEither $5 or 3% of the amount of each transfer, whichever is greater in the first 60 days. Then, either $5 or 5% of the amount of each transfer, whichever is greater.660 - 850
AAdvantage® Aviator® Red World Elite Mastercard®0% introductory APR for the first fifteen billing cycles following each balance transfer that posts to your account within 45 days of account opening., then an APR of 18.99%, 22.99%, or 27.99% applies.$5.00 or 3% whichever is greaterNot available

Snowball method

If you're a consumer who is able to make larger payments but need ongoing motivation to follow through, the snowball method can be a great option. With the snowball method, you apply the larger payments to the smallest balance first, while paying the minimum on the rest.

Pros

  • Sense of accomplishment in shortest possible amount of time
  • Process encourages you to keep paying off your debt through momentum
  • Paying off many small debts makes paying off the rest of your accounts less overwhelming

Cons

  • You may pay much more interest than the avalanche method (if the smallest balances are also the ones with the lowest interest rates)
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After the first balance is paid off, you move on to the next smallest and repeat until all balances are paid off. This method offers consumers momentum, as paying off the smallest balances first provides quick, easy victories and encourages you to keep progressing. The downside to this method, however, is that you may end up paying much more interest than you would with another method (the avalanche method, for example), if your lowest balances also have the lowest interest rates.


Avalanche method

For consumers who are able to make larger payments and are looking to save on interest, the avalanche method may be your best option. With the avalanche method, you make the largest payment to the highest-interest rate balance while paying the minimum on the others. After paying that one off, you move on to the next highest-rate balance. You repeat again, until all balances are eliminated.

Pros

  • Save money on interest rates

Cons

  • Progress may seem slow (if your highest-rate balance is also your largest balance)
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This is the more strategic method if you're looking to save money on interest rates. Getting rid of the balances with the highest rates will avoid accumulating interest at a faster pace. The downside with this method is that your progress may seem slower if your balance with the highest interest rates is also your biggest balance, which can be discouraging for some consumers.

Snowball vs. avalanche: Which is best?

Whether the snowball or avalanche method is better will depend on your goals and personal debt situation. That said, in many cases, it can be better to use a combination of both the snowball and avalanche methods. This will allow you to pay off debt rapidly while accruing less interest overall. Try our debt payment calculator tool below to determine which method will be better for your specific scenario.

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Personal loan

Taking out a personal loan is a solid strategy if you have good credit and are looking for structured payments. A personal loan is money you borrow from a bank or other lender that you pay off at a fixed monthly rate over the course of several years. There are different types of loans or lines of credit that you can access to consolidate your credit card debt in order to pay it down.

Pros

  • Lower interest rates than credit cards (generally)
  • Consolidate your debt with a single loan
  • Can raise your credit score, since personal loan balances aren't factored into your credit utilization ratio
  • A schedule with fixed payments. helps you to stay on track

Cons

  • Consumers with low credit scores may not qualify
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Unsecured personal loans (also known as debt consolidation loans) can be a good choice for managing your debt. These loans are available for consumers across the credit spectrum, but the best interest rates go to those with higher credit scores. Rates on personal loans average around 9.41%, according to Experian, but rates will be higher or lower depending on your credit score and financial situation. Personal loan rates can still be relatively high, so it makes sense to compare them to your credit card APR rates to make sure they’re lower. If your debt is largely on store credit cards, which have especially high rates, a personal loan may be a smart move.

If you cannot be approved for an unsecured loan, a secured personal loan may be an option. These loans are secured by collateral, which could include things like your house or car. This provides a strong incentive for borrowers to pay back the loan on time to avoid losing their property. Secured loans tend to have lower interest rates than unsecured loans and will accept consumers with lower credit scores. The downside, however, is that it often takes longer to be approved for a secured personal loan and you'll be required to pay off your debt in a shorter amount of time than with an unsecured personal loan.

Home equity

Homeowners with plenty of equity in their residences may also consider a home equity line of credit (HELOC), home equity loan or cash-out refinance to pay off debt.

Pros

  • Typically have lower rates than credit card APRs
  • You can generally borrow up to 85% of your home's value

Cons

  • You have to use your home as collateral, so if you stop making payments, you could lose your house.
  • You may have to pay closing costs
  • Must have sufficient income and equity in your home
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The rates on these types of loans are typically much more favorable than credit cards, with the best rates going to consumers with higher credit scores. Another advantage is that you can borrow a much larger amount than usual of the appraised value of your home (up to 80% for most cash-out loans and up to 85% for other types of loans).

You'll need to have sufficient income and equity in your home to qualify, and there is one serious drawback: Your house is your collateral.

Here are some other considerations:

Home Equity Line of Credit (HELOC)

For homeowners who want the flexibility of borrowing against a large line of credit without making changes to their current mortgage, a Home Equity Line of Credit (HELOC) can be a great choice. A HELOC is a revolving credit line against which you borrow by writing a check or using a credit card tied to the account. A HELOC is a second lien or mortgage on your property.

A HELOC can be better than a home equity loan or a cash-out refinance if you need to cover unexpected debts or if you need a financial cushion for unstable income. This is a good choice for those who require access to funds as needed and who want to make the lowest possible payment during their draw period. You may also get a lower interest rate than a personal loan or credit card.

A significant disadvantage of this method is that HELOC rates can be variable, meaning they can increase over time. Fixed-rate HELOCs are available but come with higher rates initially, which can be another downside to this option. You'll also have to figure closing costs into the cost of this option. Upfront costs include application fee, title search, appraisal, lawyer fees, and points — or a percentage of the borrowed amount. Plus, you may have to pay additional fees, including an annual membership/participation fee and a transaction fee every time you borrow money.

Home equity loan

A home equity loan can be a good option if you have a higher credit score, prefer to take out a single loan with a fixed interest rate and payment and don't want to make changes to your first mortgage. A home equity loan allows you to borrow a lump sum that you repay in equal monthly payments over the life of the loan. An equity loan is a second lien or mortgage on your property.

Home equity loans generally offer lower interest rates than credit cards or personal loans. Additionally, your interest payments may be tax-deductible if the funds are used for home improvements.

However, home equity loan interest rates tend to be higher than those of a HELOC or first mortgage. Closing costs for home equity loans typically total 2% to 5% of the loan amount, which is quite high, and you could lose your home if you default on your loan.

Cash-out refinance

A cash-out refinance can be the best option for homeowners with lower credit scores looking to make the lowest possible payment and who prefer a fixed monthly payment and interest rate.

A cash-out refinance is when you take out a new loan for a higher amount than you owe on your existing mortgage, therefore refinancing your mortgage. You pocket the difference between the two loans in cash. Cash-out refinance loans can either be a fixed-rate mortgage or an adjustable rate mortgage.

Your new loan will likely have different terms than the original mortgage loan and a new payment amortization schedule, which will cover your new debt. This can be of great advantage, as it can result in a potentially lower interest rate.

While a lower interest rate may help you pay down your debt faster, extending your mortgage means you'll end up paying more interest overall. Another drawback of this method is that closing costs can be expensive, though they will be similar to those of your original mortgage.


Debt management plan

If you find yourself unable to make at least the minimum payment on your credit cards and are falling behind, you may want to consider a debt management plan, or a DMP. This plan, administered by a non-profit credit counselor, lowers your monthly payments to each credit card issuer to fit your budget. You are required to make one monthly payment to your credit counselor, who then distributes the funds to your creditors on your behalf.

Pros

  • DMPs offer professional advice and negotiate with your creditors on your behalf
  • DMPs can result in lower interest rates and waived fees
  • You only have to make a single monthly payment and your counseling agency will strategically disperse your payment to your creditors

Cons

  • You'll need to close the credit cards involved in the DMP
  • DMPs usually require initial and ongoing service fees
  • DMPs can only cover specific types of loans, which generally exclude things like student loans and secured debts
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Before the plan is set up, you must have an initial session where the counselor goes over your personal finances — income, debts and other financial obligations — to set a budget and determine if a DMP is a good option. If so, the counselor negotiates with your creditors on your behalf to get reduced payments. You have many options when it comes to choosing a DMP, for example the American Express debt management program can be a good option for some consumers.

DMPs can be an excellent option for those looking for hands-on assistance, as you'll have personalized, professional advice from an advocate who is negotiating with your creditors on your behalf. This can result in lower interest rates and waived fees. However, you will no longer have access to the credit cards involved in your DMP which can be a problem for some consumers. It's also worth noting that DMPs can only cover some types of debts, like credit card debt, but do not usually include things like student loans or secured debts.

Why you shouldn't just pay the minimum amount due

A minimum payment is the smallest amount you can pay toward your credit card balance each month without getting penalized. You may be tempted to make the minimum payment on all your balances, because it leaves you with more cash on hand. However, this approach can be very costly in the long run. You'll generally accrue a large amount of interest. In some cases, you can pay more in interest than the original balance. Plus, you risk spiraling into debt that you can't pay off if you fail to pay down your current debts while building new debts.

For example, if you have a $5,000 balance on a credit card with a 17% APR. Your minimum payment is calculated as 2.5% of your balance. If you just pay the minimum (starting at $125) and add no other charges, it will take 255 months, or more than 20 years, to pay off the debt. You also end up paying $6,045.56 in interest charges, more than the original balance. But if you pay $250 a month, it will take only 24 months to pay off, and you fork over just $921 in interest.

{"backgroundColor":"ice","content":"\u003C\/p\u003E\n\n\u003Ch3\u003EWhy you shouldn't just pay the minimum amount due\u003C\/h3\u003E\n\n\u003Cp\u003EA \u003Cstrong\u003Eminimum payment\u003C\/strong\u003E is the smallest amount you can pay toward your credit card balance each month without getting penalized. You may be tempted to make the minimum payment on all your balances, because it leaves you with more cash on hand. However, this approach can be very costly in the long run. You'll generally accrue a large amount of interest. In some cases, you can pay more in interest than the original balance. Plus, you risk spiraling into debt that you can't pay off if you fail to pay down your current debts while building new debts.\u003C\/p\u003E\n\n\u003Cp\u003EFor example, if you have a $5,000 balance on a credit card with a 17% APR. Your minimum payment is calculated as 2.5% of your balance. If you just pay the minimum (starting at $125) and add no other charges, it will take 255 months, or more than 20 years, to pay off the debt. You also end up paying $6,045.56 in interest charges, more than the original balance. But if you pay $250 a month, it will take only 24 months to pay off, and you fork over just $921 in interest.\u003C\/p\u003E\n\n\u003Cp\u003E","padding":"double"}

Use a payoff calculator to help you determine how long it will take to pay off your debt using different payment amounts.

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pay off in months

interest (APR)

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In order to pay off your balances in full within the specified amount of time, it is recommended you make monthly payments totalling $0.00. You will pay a total of $0 in interest over that time.

Visualizing Your Remaining Balance

The below graph can help you see exactly how quickly your total outstanding balance will go down overtime with the payment structure you selected.

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Debt settlements: Why you should avoid them

For-profit debt settlement or consolidation services claim to settle your debt for less money. However, these services typically charge hundreds to thousands of dollars in upfront fees and thousands in servicing fees. To get your creditors to negotiate, these companies generally encourage you to stop making payments so your accounts go to collections. But this and any account reported as settled damages your credit score. Some creditors refuse to work with some debt settlement companies, so many of your debts remain outstanding. You may owe penalties and late fees on those that went into collections. The success rate for debt settlement is abysmal as well.

How does credit card debt affect your credit score?

Credit card debt can have a serious negative impact on your credit score. In fact, the amount of credit card debt you have is one of the largest factors influencing your credit score — the more debt you accrue the worse the impact on your credit score.

In addition, carrying a lot of debt can also result in a high credit utilization rate, which also can have a serious negative impact on your score.

Next steps

If you're ready to start tackling your debt, follow these steps to successful debt repayment.

  1. Decide which method is right for you — Make sure the debt payment strategy you choose is realistic and something you know you can stick with.
  2. Stick to your debt strategy and budget accordingly — It's essential to begin this process with an accurate budget and to stick to your debt strategy in order to be successful and avoid accruing new debt.
  3. Try to pay off more than your card's monthly minimum — Doing this will speed up the process and help you avoid high interest payments.
  4. Don't quit! — Paying down your credit card debt can seem like a daunting and seemingly insurmountable task, but if you stick to your debt strategy and keep making your payments, it will all pay off in the end.

FAQs about how to pay down credit card debt

What is the fastest way to pay off credit card debt?

The fastest way to pay off credit card debt is to choose one of the above debt strategies. The snowball, avalanche and balance transfer credit card methods are fast and efficient ways of paying off credit card debt if you make a realistic budget and stick to your plan.

How can I pay off $20,000 in debt?

You can pay off $20,000, $2,500 in credit card debt, or any other amount by employing one of the above debt strategies. With that amount of debt, you might consider a heavier duty option, like a DMP or personal loan to pay down what you owe.

What are the three biggest strategies for paying down debt?

The three biggest strategies for paying down debt are the snowball method, the avalanche method and opening a balance transfer credit card. However, DMPs, home equity and personal loans are also options when it comes to paying off your debt.

What are tricks to paying off credit cards?

Tricks to paying off credit cards include increasing your income with a side-hustle or part-time job, using one of the above debt management strategies, lowering your monthly spending, and switching to only using cash in order to better manage your finances.

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