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After having “non-rev” privileges with Southwest Airlines, Christy dove into the world of points and miles so she could continue traveling for free. Her other passion is personal finance, and is a cer...
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If you’re carrying credit card debt, you’re not alone. In fact, over 50% of all open credit cards have a balance¹ and among cardholders with these unpaid balances, the average amount of outstanding debt was $6,569.²
Obviously, the main goal for anyone with a credit card is to pay that balance off in full at the end of each month. But we all know that things happen, and it’s not always possible to do this each month. Credit card debt can slowly creep up and can easily leave you feeling overwhelmed.
This guide will offer tips to reduce or pay off your credit card debt in a few easy steps — and keep you encouraged and motivated in the process!
5 Steps for Getting Out of Credit Card Debt
Eliminating your credit card debt requires a thoughtful and deliberate approach — from creating a budget, determining your best payment strategy, and even contacting creditors to renegotiate rates.
The reason credit card debt is such a big problem is due to the high interest rates (known as APR) that cards often charge. Sometimes, it can feel like you’re making payments in vain, as you see the total balance hardly being affected and other fees being added on. If you’re only making the minimum payments, it can take years to pay off this debt.
Take stock of all of your current debts and obligations, including things like your mortgage or rent payment, monthly bills (like grocery, electricity, and internet), and minimum payments for all of your loans and credit cards.
Hot Tip: Including information like APRs for your cards and interest rates for your loans will be important later, so be sure to track this as well.
As far as your income goes, be sure to take into account your salary, profits from any other side businesses, and anything else that generates money (like selling clothing or receipt of dividends from any investments).
2. Reevaluate Your Spending and Find Ways To Save
Now that you know your current financial state, you can start to see where money can be saved — and where it can’t.
Always make sure you’re meeting minimum payment requirements and mandatory obligations. This is especially important for things that involve secured debt (like your car or mortgage payments). Cars can be repossessed or you could even be forced out of your home if you miss too many payments.
You’ll also want to make sure to make minimum payments on any student loan debt you may have. This is because the government can garnish your wages, your tax refunds, and your Social Security benefits if you fall too far behind.
You also don’t want to cut necessary expenses for things like food, insurance, and electricity to repay credit card debt.
There are plenty of places where costs can add up, so it’s important to take a critical look at your spending. Maybe there’s an opportunity to cancel unnecessary costs like gym memberships, Netflix, or other subscription services. These can even be put on pause and restarted when you’re in a better financial position.
When you’re reviewing your expenses, you may see that you’re spending too much money eating out and can either find a cheaper alternative or cook more at home. Each situation is different, but it’s important to look over all of your expenses to see how you can make smarter choices.
Bottom Line: Each area where you save represents more money that can be allocated to paying down your credit card debt.
3. Create a Budget
Once you know your income and have prioritized your minimum monthly debt payments, it’s time to set up a monthly budget. This will help you track your spending and give you a timeline for eliminating your credit card debt.
A good place to start is to use free online tools like Mint, Personal Capital, or YNAB (You Need a Budget). After the initial setup, most of the hard work is done automatically for you — making it easy to ensure that you stay on track with your budget each month.
Bottom Line: Things like credit card transactions, utility payments, and rent/mortgage payments are tracked automatically, but if you make a lot of cash purchases, these may have to be tracked manually.
While we’re usually big advocates of putting your transaction on credit cards to take advantage of rewards or cash-back, this is the exception. If you’ve found that you can easily overspend on credit cards or that you’re not able to keep track of how much you’re spending, try only using cash while you’re working on cutting your debt.
Paying with cash (or a debit card) can ensure that you don’t rack up additional debt while you’re making attempts to pay it off. It’s also easier to see how much you’re spending versus just swiping your card and worrying about it later.
How To Make Extra Cash
Once you’ve cut your costs, you may still find that you’re coming up short when you develop your budget. In this case, finding creative ways to make a little extra cash can help make a dent in your credit card debt! Here are some ideas:
Focus on a side business, such as selling homemade goods on Etsy or selling thrift store goods for a profit
Ask for extra shifts or overtime hours at your current job
Sign up with food delivery or grocery delivery services
Sell goods on Facebook Marketplace, Poshmark, etc.
The avalanche method involves paying off your balances with the highest interest rates first. The goal is to erase your debt as quickly and efficiently as possible while paying the minimum interest fees.
The snowball method involves paying off the card with the smallest balance first to build momentum and positive repayment habits.
The high-balance method involves paying off the card with the highest balance first to help lower your overall credit utilization and make you a more attractive borrower.
Bottom Line: All of these methods require making minimum payments on all remaining cards.
Another strategy to avoid paying interest on your credit card debt involves transferring high-interest debt to a single credit card with a balance transfer. Many of these cards allow you to pay an introductory interest rate of 0% on your balance for a set amount of time.
This isn’t a repayment strategy and will have to be used in conjunction with one of the methods listed above, but this can help you pay more money toward your principal amount and reduce how long it will take to pay off your debt by reducing interest fees. This is especially helpful when consolidating debt onto one card (which we’ll discuss next).
5. Seek Additional Assistance
When working to find additional solutions for paying off credit card debt, the Federal Trade Commission (FTC) suggests finding a credit counseling agency that offers in-person services. Many universities, military bases, credit unions, and housing authorities offer this.
These agencies can help develop a plan to tackle debt but may charge a fee for their advice. Here are some of the assistance options that a credit counseling agency might recommend:
You can always try reaching out to your creditors directly. You can explain your situation and they may be willing to renegotiate payment terms, offer a payment plan, or give you the chance to enroll in a hardship program — especially if you’ve had a history of on-time payments.
Hardship programs typically apply when there were circumstances beyond your control (like unemployment or illness) that impacted your ability to make timely payments. This might mean that you could benefit from either more affordable interest rates or no additional fees, depending on the issuer.
This might be enough for you to tackle your debt, and the worst the creditor can say is “no.”
If you have good credit, but your debt payments feel overwhelming, consider putting all of them onto 1 card. This way, you only have 1 account to keep track of and make payments towards.
As noted above, this can be made even more beneficial if this card has a 0% interest rate (also known as a balance transfer card).
These 0% rates are typically introductory and last anywhere from 12 to 18 months. After this year, regular interest rates apply to the remaining balance, so be sure to make a plan and stick to it! It’s best to line up your plan with your balance transfer card’s introductory period to maximize the benefits.
There are also fixed-rate debt consolidation loans you can apply for to help you pay off your debt. Though not as attractive as cards with 0% interest due to interest payments, personal loans can still be an attractive option for those with lower credit as interest rates for personal loans tend to be lower than for credit cards.
Debt settlement happens when a creditor agrees to accept less than the amount you owe. Unfortunately, this avenue isn’t open to most people. In this scenario, you would hire a debt settlement company to negotiate with your creditors on your behalf.
We recommend checking out the FTC website to educate yourself on potential risks, find tips for researching reputable debt settlement companies, and learn about the financial implications of choosing debt settlement.
In extreme cases, bankruptcy can help eliminate credit card debt since you’ll no longer be obligated to pay your creditors.
There are some huge drawbacks though:
You’ll be required to attend credit counseling before filing.
Filing can be expensive when you account for filing fees and a bankruptcy attorney.
Your bankruptcy will be a matter of public record (and remain on your credit report) for 7 years — leading to a drastic drop in your credit score
Bonus: Change Your Financial Habits Moving Forward
Once you’re out of debt (or on your way to being debt-free!), it’s important to ensure that you have healthy financial habits moving forward:
Stick to your budget: Review your spending at least annually and make adjustments as needed.
Establish an emergency fund: Having a safety net can reduce the need to rely on credit cards when you have an unexpected expense pop up.
Set savings goals: Are you trying to save for a new house? Start or contribute to a retirement fund? Make sure you’re setting aside money for these important goals.
We know that credit card debt can seem overwhelming, especially because everyone’s situation is unique. We hope we’ve given you some good tips to cut costs, while also developing a plan to pay off your credit card balances.
By breaking down the repayment process into steps and familiarizing yourself with some popular repayment strategies, it becomes easier to tackle. If you find yourself in a situation where the debt is overwhelming, there are some more drastic measures you can take to reduce your debt.
Hopefully, you can carry these changes you’ve made throughout your credit journey — even after your credit card debt has been repaid!
Featured Image Credit: Towfiqu barbhuiya via Unsplash
Frequently Asked Questions
How do I get rid of credit card debt?
The best way to get rid of credit card debt is to come up with a strategy and stick with it! There are 3 popular strategies to pay off credit card debt, including:
Check out our article to see which method is best for you and your situation.
How to get help with credit card debt?
If the tips above don’t work for you and you find yourself still needing help getting out of credit card debt, a good first step is starting with the Federal Trade Commission’s suggestions regarding a credit counselor.
The FTC offers tips on what to look for when getting help managing credit card debt.
What is credit card debt?
Credit card debt is any amount that you owe on your credit that is past the due date. This is also known as carrying a balance on your card.
Each time you leave a balance on your card, you are subject to interest payments (and late fees if you don’t make at least the minimum balance). This causes the amount you owe to drastically increase each month due to the traditionally high APRs on credit cards. It’s easy to see how this can get out of hand quickly.
How to get rid of debt without paying?
The only way to get truly get rid of debt without paying is by filing for bankruptcy. This will completely eliminate the debt you own — but it comes with some severe consequences. This will stay on your record for 7 years and during this time your credit score will take a huge hit. It may be impossible to get a loan at all, but if you do, the terms will be very unfavorable.
Instead, try taking the steps we’ve noted in our article, including making small payments or even renegotiating terms with the lender.
After having “non-rev” privileges with Southwest Airlines, Christy dove into the world of points and miles so she could continue traveling for free. Her other passion is personal finance, and is a certified CPA.