Ditch the plastic: 8 strategies for crushing your credit card debt

Once you have accumulated a balance on your cards, their high annual percentage rates (APRs) can make it difficult to repay your debt. Successfully paying off your cards requires careful budgeting and commitment. 

Why it’s important to get out of credit card debt

It’s important to avoid credit card debt for one big reason: Carrying a balance can be costly; credit cards are one of the most expensive forms of credit, with higher interest rates than car loans or personal loans. 

According to the Federal Reserve, the average annual percentage rate (APR) for cards that assessed interest was 22.16%. With such a high APR, interest can accrue quickly, causing you to repay more than you initially charged. And if you accumulate too much debt and miss a payment, your credit card issuer can penalize you with a higher penalty APR (some companies charge rates as high as 29.99%) and late payment fees. 

If you pay off your credit card’s statement balance in full every month by the payment due date, the card issuer doesn’t charge you any interest. However, many credit card users don’t do that. According to the Federal Reserve, 48% of credit card users carry a balance, meaning they don’t pay off the entire statement balance, so they must continue making payments against the balance in the next month. 

When you carry a balance, you have to pay interest on the amount that’s carried over, and interest charges can cause your balance to grow. 

How debt payoff helps your credit

Paying down debt reduces your credit utilization ratio and improves your attractiveness as a borrower since it improves your credit score. Experts generally recommend maintaining a credit utilization ratio under 30%.

Your credit utilization is the percentage of your credit limit that you use. For example, if your credit card’s spending limit is $1,000 and you have a $300 balance, your credit utilization percentage.

With a lower balance, your minimum monthly payments will be smaller, too. The lower minimum payment will be easier to afford, so you’re more likely to make all of your payments on time. For both FICO and VantageScore, your payment history is the biggest factor affecting your score. 

When you rack up credit card debt and max out your spending limit, your high balance can damage your credit score. With the FICO scoring model, credit utilization makes up 30% of your FICO credit score. With Vantage Score, it makes up 20% of your score. 

“So the higher the [credit card] balance, the more it makes creditors nervous because you don’t have any kind of wiggle room if you hit a financial bump in your life,” says Todd Christensen, education manager with MoneyFit.org at Debt Reduction Services, a non-profit credit counseling agency. “Basically, you’re maxed out, and you could start missing payments.”

How to get rid of your credit card debt

If you’re researching how to get rid of credit card debt, you may feel overwhelmed by your balances. But by following these steps, you can get a handle on your debt and develop a plan so you can pay off your balances and become debt-free. 

If you’re in a bind, talk to your credit card issuer

If you have a sudden financial emergency, such as getting laid off from your job, contact your card issuer right away.

“If you think that you’re heading for a situation where your debt is going to become unmanageable, start early by having a conversation with your creditors,” advised Bruce McClary, senior vice president of media relations for the National Foundation for Credit Counseling, a non-profit credit counseling organization. “Talk to the credit card companies and explore some options to help keep your debt affordable.” 

The sooner you reach out, the more options you’ll have. Many credit card issuers have short-term financial hardship programs for customers, but you typically have to contact them before you miss a payment to qualify. 

Depending on the issuer and your circumstances, you may be eligible for a short-term payment program with benefits like a lower interest rate, lower fees, and a smaller monthly payment. 

Identify the cause of your credit card debt

For some, credit card debt may have grown because of major medical bills or car repairs. 

Credit card debt can build because of sudden, unexpected problems. 

But it also can creep up on you, slowly growing over time. To get a handle on your debt, you need to identify what caused you to get into debt in the first place. 

Creating a budget is a key part of this process. Review your credit card statements from the past three to six months and compare your spending to your income. If your credit card balances have grown, try to figure out what causes you to spend and look for solutions to trim your spending. 

For example:

• If you tend to go shopping when you’re stressed: If you use shopping as a way to destress or reward yourself, (retail therapy, anyone?) there are some easy tricks to cut back. If you tend to shop online, you can delete your saved credit card info or unsubscribe from your favorite stores’ notifications. Or add things to your cart, but force yourself to wait 72 hours before checking out. You may be surprised at how the waiting period causes you to rethink your purchases. 
• If you spend a significant amount at restaurants or takeout: If you have a busy schedule, you may feel too tired at the end of the day to cook, so you may rely on takeout or delivery services. You could save a significant amount of money by meal-prepping one day a week or keeping simple, ready-made foods at the ready so you can just grab them when you’re hungry.  
• If you’re relying on credit cards because your expenses outpace your income: With rising prices, many people are using credit cards more. If your earnings aren’t enough to cover your necessary expenses and you’re using credit cards to finance the gap, you may have to make some tough decisions. For instance, you may have to start a side hustle to bring in extra money or cut your expenses by downsizing or getting a roommate. 

Identifying the root causes of your debt and developing strategies to curb your spending are essential tasks that you must complete before developing a credit card repayment plan. 

Choose a payoff strategy that works for you

Once you know what caused your debt to grow, you can think about how to get out of credit card debt. There are two main strategies for debt repayment: the debt snowball and the debt avalanche. 

• Debt avalanche: If you use the debt avalanche method, you make a list of all of your cards, from the one with the highest APR to the one with the lowest. Make the minimum payments required for each card. With any extra money you have, put it toward the account with the highest APR. Once that account is paid in full, take the money you were paying and apply it to the card with the next-highest APR. Continue this process until you’re completely debt-free. 
• Debt snowball: With the debt snowball, you list your accounts from the one with the smallest balance to the one with the largest. Continue making the minimum payments on all accounts, but put any additional funds to the account with the smallest balance first. Once it’s paid off, you can roll that payment toward the next-smallest balance. 

The debt avalanche is the best financial option since you’ll save more money on interest and pay off your debt faster. But the debt snowball can be psychologically better if you need help staying motivated. As you pay off the smallest accounts, you may get an extra boost of motivation and stay focused on eliminating your debt.  

Switch to cash

There’s no question that credit cards are convenient. But that convenience comes at a price. 

A 2021 study published in Scientific Reports examined the differences in brain activation when using a credit card versus cash. The study found that those using credit cards were more likely to buy high-value items, and they also spent more overall than those who only used cash. 

Using cash—having to physically hand over bills to a cashier—may make you more aware of your spending. And seeing the bills leave your wallet may make you rethink impulse purchases so you can save money. 

Up your minimum payment

Paying only the minimum required is one of the biggest credit card mistakes you can make. With the high APR on credit cards, most of your minimum payments will go toward interest charges rather than the principal (i.e., the amount you originally charged to the card). 

For example, let’s say you had $1,000 on a credit card at 25% purchase APR with a minimum monthly payment of $35. With your first payment, more than $20 will go toward interest, and just $14.17 will be put toward the principal balance. It will take you 44 months to pay off your debt, and you’ll pay a total of $1,535—interest charges add $535 to your charges. 

Increasing your payments, even if it’s only an extra $5 or $10 per month, can make a significant difference. Below, see how much money you can save and how much sooner you can pay off your credit card balance by increasing your monthly payment amount. 

Consider a balance transfer

A balance transfer is when you transfer your credit card balance from one card to another with a 0% APR for a limited time so you can pay off your debt without interest accruing and save money. 

Balance transfers can be a good option if you believe you can pay off your balances within six to 18 months. But keep in mind that the APR for the amount transferred will increase to the purchase APR rate once the promotional period ends, and that APR may be higher than what you were paying on the original cards, so balance transfers require discipline to be effective. 

“The biggest downside [of balance transfers] in my book is that once they transfer the balance, they now have a completely fresh credit card that’s just been paid off or multiple credit cards that have been paid off, and they haven’t addressed the actual cause of that debt,” warned Christensen. “They’ve just shuffled their debt. And the majority of people will run those original credit cards right back up to the original balance within a year or two.”

Only use a balance transfer if you have corrected the issues that got you into debt and have a solid budget and repayment plan. 

Use a personal loan to consolidate at a lower interest rate

A debt consolidation loan is a personal loan you use to pay off your existing credit card balances. In general, personal loans have lower APRs than credit cards, and they tend to have fixed rates that never change. Consolidating your credit card debt with a personal loan allows you to save money, and you know when your debt will be paid off due to the loan’s terms. 

However, the best personal loans may not be available to you based on your credit score and financial profile. 

“I think a debt consolidation loan is a great idea, but that approach requires approval, and it requires you to have a credit score that qualifies you for the best rates,” says McClary.

If you’ve already missed payments, your credit score likely decreased, so you may not be eligible for low-interest loans. If you do find a lender, you may get a high APR, negating the value of a debt consolidation loan. Depending on the lender and your credit profile, APRs on personal loans can be as high as 35.99%. 

Meet with a debt counselor

If you’re overwhelmed by your debt and aren’t sure how to get rid of your credit card debt or where to start, consider meeting with a debt counselor from a non-profit credit counseling agency. 

“If you’ve already missed payments, or if you know you’re going to miss more, I would strongly recommend that you reach out to a non-profit credit counseling agency,” says McClary. 

Counselors provide free or low-cost advice personalized to your financial situation. They will review your bank and credit card statements, help you create a budget, and work with you to develop a plan for managing your debt.

Depending on your situation, your counselor may recommend that you enter into a debt management plan (DMP). With a DMP, the credit counselor negotiates with your creditors on your behalf to potentially lower the APR or waive the fees on your cards. You make one single payment to the credit counseling agency, and they disburse the fund to your creditors for you. 

Having one monthly payment to manage can make it easier to budget and stay on track. And with a DMP, you can usually get out of debt within three to five years. 

To find a reputable credit counseling agency, the Consumer Financial Protection Bureau recommends reaching out to the National Foundation for Credit Counseling or the Financial Counseling Association of America. You can also use the U.S. Department of Justice’s database of approved credit counseling agencies to find a counselor near you.

The takeaway 

Figuring out how to get out of credit card debt can be tough on your own, especially if you’re juggling multiple cards with balances. Although it can be overwhelming, don’t put off looking up your statements or contacting your issuer. The earlier you take action, the better off you’ll be. 

You won’t be able to pay off your credit card debt overnight. But developing a plan and sticking to it will pay off in the long run. “I always say find a mentor, find a coach or tell a friend [about your debt] who’s going to ask you about it every week or every two weeks,” Christensen says. “Just just find somebody that you can contact to keep yourself accountable.”