How to pay off credit card debt: 4 strategies

If you’re carrying credit card debt, you’re not alone. According to the Federal Reserve Bank of New York, American consumers owe approximately $1.28 trillion in credit card debt. Estimates say as many as 50% of Americans who own a credit card carry debt from one. 

Learn more about how to reduce—and eventually pay off—your credit card debt.

What you’ll learn:

• If you carry a balance on your credit card and only make the minimum payment, you’ll be charged interest and your debt could grow.

• Strategies for paying off credit card debt include the avalanche method, the snowball method, balance transfer credit cards, adjusting your payment amount, reducing spending and consolidating debt. 

• Combining several strategies may help you create a plan to pay down your debt faster.

• If you’re struggling to keep up with payments, you could contact your credit card issuer to explore options or reach out to a reputable credit counselor for help.

Credit card debt is the unpaid balance you owe on a credit card. Understanding how payments, interest and balances interact could help you manage debt more effectively. Here’s more information on each:

• Minimum payments: Credit cards allow you to make minimum payments, the smallest amount needed for an account that’s in good standing. This can be beneficial in the short term as it helps you avoid late payments, which can negatively affect your credit scores. But interest will be charged if you don’t pay your entire balance. Over time, this can lead to a larger portion of your payment going toward interest rather than the principal balance.

• Interest rates: Annual percentage rates (APR) on credit cards can be higher than interest on other types of debt. That could translate to higher costs if you don’t pay off your balance each month. 

• Balances: If you carry a balance on your credit card and only make the minimum payment, you’ll be charged interest. And that means your debt could grow. So keeping your balance low could help reduce your costs.

Reducing your overall debt can be a stepping stone to getting out of debt. Here are some options for targeting your credit card balances.

Using a strategy called the debt avalanche method, you make the minimum payments on all your debts and put extra money toward the balance with the highest interest rate. Once that debt is paid off, you put any extra money toward the balance with the next-highest interest rate and so on. This strategy could help you save money in the long term because high-interest debts are more costly.

With the debt snowball method, you make the minimum payments on all your debts but then focus on putting any extra money toward paying off your smallest balance first. Once you’ve paid that off, you can dedicate any funds that have been freed up to your next smallest debt and so on.

Debt consolidation involves combining multiple debts into a new account with one monthly payment. Here are two of the methods:

• Balance transfers: Consolidate multiple card balances into one new credit card account. These cards may come with a low introductory rate, which could help you save money on interest. But the interest rate typically increases when the introductory period ends. And the card’s standard APR will then apply to any remaining balance on the card. 

• Debt consolidation loans: Personal loans used to combine multiple debts into one new account with a single monthly payment. Like a credit card balance transfer, a debt consolidation loan won’t erase your debt. But combining multiple balances could make debt easier to manage.

When you reduce spending, you can put more money toward debt and potentially save money on interest. Here are some ways to manage your spending. 

• Create a budget. There are lots of different ways to budget, but in general it goes something like this: List your monthly expenses such as rent, utilities and groceries, along with your debts such as credit card balances and student loans. Write down how much you earn each month and subtract your bills and minimum required debt payments. The amount you have left over is a starting place to consider how much extra to put toward your debt payoff each month. You could even use your credit card’s features to help you budget.

• Set a goal. Once you know how much debt you have and how much you can pay toward it each month, you can estimate how long it will take to pay it off. Mark that date on your calendar. Having a goal in mind can help keep you focused and motivated. 

• Track your spending. Use whatever tracking method works best for you, whether that’s an app, a spreadsheet, or a pen and paper. Write down everything you spend money on and review your list every few weeks. This can be a good way to better understand your spending habits and find areas where you can cut back. 

• Tell a friend or family member. If they know you’re working toward a debt payoff goal, they may be able to offer support. They might also help you think of ways to budget or fun things to do for free, both of which could help you stick to your goals.

If you’re having a hard time keeping up with your credit card debt, the Consumer Financial Protection Bureau (CFPB) says “many credit card companies may be willing to help if you’re facing a financial emergency.” The CFPB goes on to say that you don’t have to be behind on your monthly payments to ask for debt relief assistance, either.

If you’re having trouble with your monthly payments, you can try contacting your credit card issuer as soon as possible.

You could also consider credit counseling. Credit counselors can do things like give advice, help with budgeting and organize debt management plans. You can find resources through the:

• Financial Counseling Association of America

• National Foundation for Credit Counseling

• U.S. Department of Justice list of approved credit counselors

Find answers to commonly asked questions about paying off credit card debt.

With some research, an effective plan and consistency, you could make progress toward paying off credit card debt and improving your credit scores.

CreditWise from Capital One makes it easy to monitor your credit by showing you factors that affect your credit scores. Plus, you can use its Credit Score Simulator to see how paying off credit card debt or transferring a balance could affect your score. CreditWise is free, and using it won’t hurt your credit scores.