If you have a large balance on a high-interest credit card, paying off the balance can be difficult. That’s because the monthly finance charges eat up your minimum payment and the balance only goes down a small amount every month.
The longer it takes you to pay off your balance, the more you spend on interest. This process can significantly damage your financial stability, preventing you from saving money or reaching big life milestones like buying a house or retiring.
There are several ways you can approach paying off credit card debt, including high-interest credit cards, that will help you take control of your finances.
Why Is High-Interest Debt Hard to Pay Off?
High interest rates make it harder to pay off your debt because the interest increases substantially every month. This means that if you make only the minimum payment, most of that is going toward the interest you owe.
Only a small portion actually goes towards decreasing your debt. The next month, more interest is added on, again increasing the amount you owe and the time you need to pay off your debt.
If you continue to accumulate more debt, for example by continuing to use the high-interest credit card that is carrying a balance, it will take even longer to pay off. You may end up paying far more in interest than the cost of the purchases you made.
Luckily, there are several strategies you can use to get out from under high-interest debt and start taking control of your finances.
Ask for a Lower Interest Rate
Creditors are sometimes willing to lower interest rates, especially for cardholders that have always paid on time or have only missed one or two payments. If you are usually reliable in making payments, call your credit card company and ask if they can offer you a better rate than you currently have.
If you’re getting offers for other credit cards with lower rates, you can use those offers as a bargaining chip.
Transfer the Balance to a Low-Interest Rate Credit Card
A few months without interest may be all you need to get on top of your debt and pay off your balance. If you have good credit, you may qualify for a good balance transfer interest rate.
This will allow you to transfer the balance on one card to a new credit card with a lower interest rate, sometimes even no interest for an introductory period.
Read the fine print to understand how long you have low- or no-interest rates available. You want to pay off your entire balance within that time; otherwise, you will start accumulating interest again.
Don’t limit your search to balance transfer credit cards. Rewards cards often have good balance transfer rates as well.
If you don’t have enough available credit to transfer an entire balance to a single credit card, moving a portion of it can still lighten the load and help you pay off your debt sooner. However, you should only do this if you are confident in your ability to limit your spending and not run up debt on two cards instead of only one.
Pay as Much as You Can
With a high-interest debt, most of your monthly payment goes toward interest. If you want to make progress toward paying off the principal, you have to increase your payments.
You'll be more successful if you pay the minimum on all your other debts and put all your extra money toward a single high-interest rate debt. Once you've paid off one debt, you can work on the debt with the next highest interest rate, and so on, until you've paid all your debts.
This is known as the "avalanche method" of debt repayment.
If you're struggling to pay off your high-interest debt, you will likely need to make significant changes to your spending and budget in order to make room for extra payments. There are a number of ways you can reduce your spending:
- Entertainment: Disconnect your cable, reduce streaming subscriptions, cut back on eating out.
- Health: Reduce your alcohol consumption and cigarette smoking, cut back on coffee and sodas.
- Utilities: Turn down or raise the temperature on your thermostat by two degrees, turn off lights and fans when you leave rooms, use a power strip to unplug unused appliances.
- Living: Move to a cheaper apartment, advertise for a roommate, move in with friends or family.
- Groceries: Reduce your meat consumption, eat cheap protein such as lentils or beans, avoid snacks or premade meals, use coupons at the grocery store.
Squeezing more money out of your budget gives you more to put toward your credit card debt. For example, if you drop two streaming services, you could have an extra $20 to put toward your credit card debt. If you eat out once less per week, that's an extra $40 per month. Combined, that’s already an extra $60 on your monthly credit card payment.
If making too many changes to your budget feels overwhelming or unsustainable, try reducing spending in only one category per month, then switch to a new one next month. This will allow you to save money without feeling deprived and may help you build new spending habits over time.
Wait a Few Months
If you absolutely cannot squeeze any extra money from your budget and you can’t produce any extra income, you may have to delay your debt-free goal for a few months.
While you are waiting to make extra payments:
- Avoid making additional charges on your high-interest credit card.
- Pay for essentials with cash only.
- Keep making minimum payments on your credit cards to prevent your credit score from slipping and your debt from growing.
Yes, you’ll still be spending significant money on interest. But if you can’t afford to pay off your high-interest rate debt right now, then you simply can’t afford it.
If you can't slash your budget any further, look for ways to increase your income, such as taking on a second job, selling unused jewelry or electronics, or picking up neighborhood tasks like dog walking and yard work.
Wait two or three months, then reassess your budget and expenses to see if anything has changed. As soon as you are able to, begin tackling your debt.
Tackle Smaller Debts First
Getting rid of high-interest rate debt first may not be the best strategy for you. Paying off some smaller balances would free up money to put toward your larger, high-interest rate debts. Make a list of your debts to figure out which can be paid now and which must wait. As you get rid of small credit card balances, don’t forget to put that same monthly payment toward another credit card balance.
This is known as the "debt snowball" repayment method.
This method often takes longer than the debt avalanche method, and you will likely pay more in interest. However, you will be able to see debts disappear more quickly, and that feeling of success can increase your motivation to continue eliminating your debt.
Get Credit Counseling
Depending on your debt, income, and expenses, a credit counselor may be able to enroll you in a debt management plan (DMP).
On a DMP, your creditors lower your interest rate and monthly payment. You can take advantage of the lower interest rates by sending larger monthly payments and asking the credit counselor to apply the additional payment to your highest rate first.
The catch is that you can’t use your credit cards while you’re on the DMP and a note goes on your credit report stating you worked with a credit counselor. However, this may be worthwhile to finally get out of debt, which also damages your credit report.