Pay Off Credit Card Debt: 8 Easy Tips to Get Started
Written By Jay
The best way to pay off credit card debt is to get started now. When struggling to make ends meet, using credit cards to make up the difference can be a tempting solution that can temporarily ease the stress of living paycheck to paycheck. However, this can become a slippery slope as your debt and minimum payments grow, putting even more pressure on you each month.
Paying of your credit card debt should be goal number one when taking control of your finances. Debt will undermine all of your other financial efforts. According to the Federal Reserve, the average credit card interest rate in February 2023 was just over 20%. That means that while you may be saving money, you are being charged interest on your credit card balance in the background. It would be virtually impossible to out invest your credit card interest and, if you did, you probably could have just paid off your card in the first place.
So, how exactly do you pay off your credit card debt? I’ve outlined 8 easy tips to get started so you can start working your way toward debt freedom.
Pay Off Credit Card Debt: Table of Contents
Make a plan to start paying off credit card debt
As usual, the first thing to do before starting anything is to make a plan. This will ensure that you are using the best strategies to pay off your debt. The best way to pay off credit card debt for someone with $500 in debt will be different from someone with $50,000 in debt.
The best way to do this is to simply take inventory of all of your credit card debt and document it somewhere. You could use Excel or write it down somewhere, the medium doesn’t matter as long as you are comfortable with it and can use it easily in your planning.
Make a list of every credit card that you have, what the balance is, and what the interest rate is. You can also add what the minimum payments are. This is going to give you a good overview of which cards are accruing more interest, which have higher balances, etc.
Start a budget
If there is money involved, there should be a budget, especially if you are working toward paying off your debt. Knowing how much money you have to work with is going to be crucial when developing your plan. Also, knowing where your money is going shows you where you can cut spending and free up more money to put toward your credit card payments.
Create your own
Creating a budget isn’t difficult and it definitely doesn’t have to be complicated. There are really only a few basic elements to make a great budget.
- You need to know how much money you receive each month from work, side jobs, etc.
- You need to know how much money you spend each month (include everything!)
- You need to assign amounts (budget) for each expense. For example, you may want to budget $400 for food each month.
Once you get everything in place, you can start looking at places where you can reduce your spending. Excess money will be budgeted for paying off your debt.
If you are interested in creating your own budget, check out our tutorial on how to create a budget in Excel. If you have Excel but don’t want to spend the time making your own there is also a free downloadable budget template already made and ready to go.
Don’t have Excel? Download our free budget printable.
Credit card debt payoff strategies
1. Debt Snowball
You may have heard of this one before. The debt snowball approach to credit card payment is to focus on your smallest debt first and work your way up. Take a look at your list and pick the card that has the smallest balance. This is the card that you will pay off first.
Once that card has been paid off, you will move on to the next and do the same thing. Repeat this until you are free of your credit card debt.
This strategy is useful in that it gives a nice psychological boost and can help you work your way up to paying off your larger, more imposing, credit card balances. The debt snowball can help you ease into paying off your debt and lets you ramp up your efforts over time.
The downside to this is that if you have a very large balance on a card with a high interest rate, you may want to work on getting that one down as soon as possible since it will be the one that has the most financial impact.
2. Debt Avalanche
The debt avalanche method of credit card debt payoff basically the opposite of the debt snowball. Instead of starting with your smallest balance you will be starting with your largest. As I mentioned before, if you have a card with a large balance and/or very high interest rate, it would probably be a good idea to focus on paying off this one first since the financial impact will be greater.
After you’ve managed to pay off your largest debt, you will be moving on to the next largest and so on until all are paid off. What is nice about this is that everything will only get easier as you progress.
The debt avalanche can be a little bit daunting if you are faced with a huge credit card balance but don’t be deterred. There are other strategies that can be used to help.
3. Pay more than once a month
The way interest is charged for credit cards is a little different than what you would probably expect. They use what is called a Daily Periodic Rate (DPR) which is your Annual Percentage Rate (APR) divided by 365. This amount is then multiplied by your credit card balance each day and then added to it to be multiplied again the next day, throughout each month. At the end of the month this amount is added to your balance.
How does paying more than once a month help? Because these charges build on each other, day after day, making payments throughout the month will help knock down this amount and disrupt the compounding effect.
A simple way to implement this strategy is to split your monthly payments into two. This can work well if you are paid twice a month. Setting up an automatic payment that gets taken out of every paycheck can be a really easy way to take advantage of this payment method while also helping ensure adherence to your payoff plan.
Consolidate your credit card debt
You may have heard of debt consolidation before but never really gave it much thought. Consolidating your credit card debt can be a good option if you have several high interest rate credit card balances.
4. Debt Consolidation Loan
A debt consolidation loan is basically what it sounds like and can be particularly helpful if your credit score is higher, allowing you to secure a lower interest rate on your new loan.
The process is fairly simple. Let’s say you have three cards, all with a rather high interest rate, let’s say 20%. You will take out a loan that will cover your credit card debt which will effectively lower your interest rate to whatever the new loan rate is and allow you to pay off one payment each month rather than the three in this example.
5. Transfer your debt to a transfer card
It may seem counterintuitive to open up another credit card to help pay off your credit card debt but a transfer card can be a useful debt payoff tool when used correctly.
A transfer card is a low or zero rate credit card offered by credit card companies that you can transfer other credit card balances to. These credit card companies offer this lower rate for at least six months, after which the credit card percentage rate will revert to whatever their standard rate is.
This is helpful because it allows you to move all of your debt into one place where you can pay one payment and take advantage of a period of time with a zero or very low interest rate. This can help you pay off your debt more quickly.
Make sure to be aware of what the interest rate after the initial period is going to be and if this is a good move for you. It wouldn’t be helpful to do this only to have your interest rate be higher than what it was before.
Ideally, you would be in a position to pay off at least a very large portion of your debt within the zero or low rate period. Either way, it is very important that you understand the new card’s terms and interest rates and how this will affect your overall debt. Always consider what the worse case scenario could be and plan accordingly.
Address why you are in credit card debt
There are several reasons why you may be in debt. Using a credit card is spending money that you don’t have. Because you don’t have this money, you are essentially borrowing it as needed when making purchases.
Addressing why you are using your credit card(s) in the first place will help you solve the root cause of credit card debt. WIthout doing this, even the best debt payoff strategies will only be short term solutions.
6. Make more money
Of course, making more money is one of the best ways that will help you pay off your credit card debt faster. Whatever strategy you choose to use, more money means you can make bigger payments, more often.
Figuring out how to make more money is the difficult part. Thankfully, we live in a time where there are more opportunities than ever to make money on the side in unique and creative ways. Whether you want to sell items, rent out space, or advertise on your car, there is probably something that will work for you if you are willing to put in the effort.
Check out our list of over 15 ways to make more money right now.
7. Spend less money
I had a boss in the past who said that spending less money was like making more money but without taxes. The takeaway is that one could make a solid argument that, all things being equal, spending less money is better than making more money.
How do you spend less money? While the answer may seem obvious, there are countless ways to spend less and they don’t all involve extreme measures.
One of the more fun ways to get started spending less money is to start a money saving challenge. If this sounds like something you would have fun with, take a look at our money saving challenges with free printables.
Another frustrating hurdle when trying to spend less can be figuring out where all your money is going. Sometimes our spending can seem so routine and necessary that we fail to realize just how much of it we spend on things we don’t even think about.
8. Understand why you are in debt
All of these strategies will only help if you understand the reason you are in debt in the first place. If you are chronically spending more money than you bring in, these strategies will, at best, only delay the consequences of your debt. The worst case scenario is that a false sense of security is instilled and your debt continues to build, leaving you worse than when you started.
If you feel that you could benefit from it, there are non profit credit counseling services offered around the United States. These companies can help set up a debt management plan and can help negotiate lower interest rates and longer terms to help you make lower payments.
A great place to start and learn more is the Financial Counseling Association of America. The FCAA is a non profit organization that partners with financial counseling companies. Consider it a resource for information and a hub for finding a credit counselor that can help you get out of debt.
DISCLOSURE: THIS POST MAY CONTAIN AFFILIATE LINKS AND/OR PAYED PLACEMENT. PLEASE READ MY DISCLOSURE FOR MORE INFO.
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