Here's How to Finally Pay Off Your Credit Card Debt

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Steep credit card debt remains a problem for many American consumers. The 2018 Financial Literacy Survey from the National Foundation for Credit Counseling (NFCC) says 1 in 4 Americans admit they don’t pay all of their bills on time. Some 61% of adults surveyed had credit card debt and 38% carry that debt from month-to-month. About 39% of those individuals have not done anything in the past 12 months to get a lower interest rate on their credit card debt.

The solution is to pay off the debt and change your spending habits to reduce your dependence on credit cards. For many people, this means making big changes to their lifestyle. Here are some strategies you can use to eliminate credit card debt and make sure it doesn’t build up again.

How and why you should address your spending first

The first step in dealing with high credit card balances is to change the spending behavior that created it. Credit cards are not intended to increase your income. With many cards carrying interest rates of 20% or more, you should always repay your balance by the end of every month. Otherwise, you’ll be hit with interest charges month after month.

If you can’t afford to buy something with cash, don’t use a credit card to purchase it. That may be easier said than done, however. You may consider the following tips:

Be honest with yourself: Liz Gillette, a certified financial planner with Main Street Planning in Odenton, Md. says working with clients to repay credit card debt works best if “the client recognizes that there is a problem and the role they play in their current situation.” Recognizing this may make them more likely to take responsibility for their debt and change the habits that got them into it in the first place.

Gillette puts a big emphasis on behavioral issues. Clients, she says, need to be able to say “let’s resolve this problem.” Most people know credit card debt is bad. They need to get to a point of “frustration” where they understand credit card debt is holding them back from achieving their personal and financial goals. If you’re at that point, make a resolution to stop accumulating debt.

Review your spending: When trying to change your buying habits, the NFCC suggests keeping tabs on your spending. Write down everything you spend for 30 days. Carry a notebook or use the memo function on your cell phone. This will make it much easier to decide where you can cut back.

Cut costs where possible: Take a hard look at your spending. If you can muster a 10% cut to each spending category that isn’t essential (such as mortgage and utilities) you can devote the savings to paying off your credit cards.

Credit card repayment strategies

Once you’ve stopped accumulating debt and have money you can put toward repayment, you’re ready to consider some repayment strategies.

One important, though: No matter whether you’re repaying one credit card or several, you should always make at least the minimum payments on all of your debts. If you fail to keep up with your other debts, you’re liable to accumulate late fees and damage your credit, among other things.

Snowball method

How it works: Prioritize debts and pay off the smallest balances first. Make the minimum payments on all debts and put any extra cash toward the smallest debt. When that debt is repaid, move on to the debt with the next lowest balance.

What’s the upside? Repaying small debts gives you a series of small “victories” and the confidence you need to tackle larger obligations.

What’s the downside? The disadvantage of the snowball method is that the smallest debts may not have the highest interest rates. You may be paying more than you need on interest by not tackling the debts with the highest rates first.

Avalanche method

How it works: This strategy focuses on the numbers and suggests that you pay off the debt with the highest interest rate first. Once it is repaid, you most on to the debt with the next-highest rate.

What’s the upside? This method can save you money over time. By prioritizing debts that are costing you the most in interest, you can curb your costs of carrying around debt.

What’s the downside? The primary disadvantage of the avalanche method is that you won’t see the kind of rapid progress that the snowball method offers. This can frustrate some consumers who prefer the satisfaction they get from paying off multiple debts quickly using the snowball method.

Balance transfer card

How it works: With this strategy, you transfer some or all of your debt to a 0% interest credit card. These cards offer a promotional period where you don’t pay any interest for 12 to 18 months, and sometimes longer.

What’s the upside? Because you aren’t paying interest for the promotional period, this allows you to devote your entire payment to repaying principal. That means you pay off the debt faster.

What’s the downside? If you don’t repay the balance by the time the promotional rate expires, the rates move back to the card’s standard rates. The standard rates on a credit card are high and could make repayment difficult, even if you have a high credit rating.

Although you could shift the remaining balance to another balance transfer card, you’ll have to pay another balance transfer fee. Falling into a pattern of opening and transferring your balances could you lead to rack up fees and make your debt harder to repay.

Refinance or consolidate with a loan

How it works: If you decide this is the best option for you, you can borrow money using a personal loan, second mortgage or home equity loan and use it to pay off your high interest credit cards. Then you repay that loan based on the terms you negotiated.

What’s the upside? Typically the interest rate and monthly payments on a personal loan, second mortgage or home equity loan will be lower that what you are paying on your credit cards. That means you will have more money available to reduce the principal on your loan.

What’s the downside? Qualifying for a personal loan with a low interest rate requires you to have good credit. If your credit is low, you may not qualify -– or you may only qualify for triple-digit rates. A second mortgage and home equity loan, meanwhile, requires you to own property and use it to back a loan. You may not want to use your home as collateral to help you repay credit card debt since you could lose the roof over your head if you can’t repay the loan.

Deciding which repayment strategy works for you

Gillette recommends the snowball method of credit card repayment to most of her clients so that they “get that sense of accomplishment” of paying off several credit card balances quickly.

Occasionally, though, she works with a client who has demonstrated a diligent work ethic to pay off debt, and will suggest they use the avalanche method and pay the highest interest rate debt first. These clients don’t need the psychological boost that the snowball method provides and can save on interest payments.

But you may find a different strategy works for you. For example, if you’re looking to repay your debt as quickly as possible, you may be drawn to a balance transfer card that lets you avoid interest charges as you make payments. Or you may simply be comfortable with getting a second job so you have extra cash pay off your credit card balances.

In the end, you need to consider your finances, what debts you’re carrying and what motivates you. If you’re struggling to decide on a repayment strategy, however, you can find help.

Can’t decide on a strategy? Credit counseling may help

If you don’t know which debt repayment strategy is best for you, consider asking for a credit counselor’s help. They can negotiate lower monthly payments and interest rates, help you cut spending and recommend a repayment strategy that meets your needs.

The nonprofit NFCC has representatives located around the country who can advise you on how to get out from under a mountain of debt.

Most credit counselors follow a multi-step process. First they look at your finances, including how much you owe, to better understand your situation and how much you can afford to pay to reduce credit card balances. Then they help you create a plan for repaying your debt. This might include negotiating lower interest rates and monthly payments with creditors. Finally, a counselor will provide some credit education so you can learn to spend within your means. This will help you prevent a similar problem from happening again in the future..

The cost of credit counseling depends on where you go. Representatives of the National Foundation for Credit Counseling, for example, provide the majority of their services at low or no cost to clients. Be careful about electing high cost services to make sure you are truly getting what you pay for.

When counseling her clients about debt repayment, Gillette asks them what debt is most important to pay off first, from an emotional standpoint. One client, for example, had a no-interest loan from her ex-husband that she wanted to prioritize paying off, so that she could finally cut her ties to the marriage. According to Gillette, “Debt is not just about dollars and sense. It can place a huge weight on our shoulders and I'd be remiss to ignore the psychological impact it can have on our lives.”

Since no two people have exactly the same financial situation, which credit card repayment strategy is best for you may differ from what’s best for someone else. The key is to find something that keeps you motivated and on target for your debt-free future.

Peter D Fleming is a freelance business and investment writer based in New York City. He has been writing and editing for more than 30 years and spent nearly 17 years as a senior editor for the Journal of Accountancy.

The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.