Credit card debt can get expensive. The interest added to revolving balances each month increases both the cost and time it takes to pay down your debt. But with the right strategy, you can shave years off your debt payoff schedule and save hundreds—sometimes even thousands—of dollars in the process.
What follows is a personal finance “kit” with strategies, tools, and resources to help you pay off your credit card debt. With this kit, you’ll have everything you need to better manage your credit card debt, and eventually eliminate it.
Money Kit: Eliminating Credit Card Debt
- Debt reduction plan and resources
- Balance transfer credit card recommendations
- Personal loan suggestions
- Additional information, spreadsheets, and calculators
The High Cost of Credit Card Debt
Interest is the most obvious cost of carrying a credit card balance. Each month until you’ve paid your account in full, part of your monthly payment is applied to finance charges, which means only a portion of your payment will actually reduce your balance.
But credit card debt costs you money in ways you may not see, too. For example, potential lenders and creditors take into account the amount of debt you have when making decisions about new loan applications. More debt means more risk, and that means you’ll pay higher interest rates—and higher monthly payments.
Higher monthly debt payments affect your overall cash flow, reducing the amount of money you have for other financial goals, like building an emergency fund, saving for vacation, or stashing money away for retirement.
Finally, debt costs us more than just money. Researchers are learning that there’s a psychological burden of carrying credit card debt that impairs cognitive ability. Debt can lead to health problems, too, including higher perceived stress, depression, and higher blood pressure.
Credit Card Debt Reduction Plan
With a solid plan in place, you can tackle credit card debt of any size. These are the steps you’ll need to take.
1. Find Out How Much You Owe
Start by getting clear on your total debt. Collect your most recent credit card statements and make a list of your credit cards and important details such as your balance and interest rate.
We’ve made a simple Google Sheets spreadsheet to help you do this.
2. Understand Your Spending
Adjusting your spending is critical to paying off your credit card debt. The more money you have available to put toward your debt, the more effective your plan will be. Look to cut back on non-essential spending, lower your monthly bills, and manage your budget effectively.
It’s crucial to stop accumulating new debt while you’re in debt payoff mode. Any new credit card purchases will offset the progress you’ve made toward eliminating your existing balances.
The best way to learn more about your spending is to track it. There are a lot of phone apps and computer tools that can help you track your spending, but all you really need is a simple notebook. A hidden benefit is that after tracking your spending for a month, you will have the foundations of a simple budget in place.
2. Choose a Payoff Strategy
Paying off your credit card debt is a matter of strategy and execution. While there are a few ways you can tackle debt, the Debt Snowball payoff method is arguably the simplest and most straightforward. Snowballing your debt focuses on paying off one debt at a time starting with the smallest balance first. This way, you can knock out the easiest debts, gain confidence in your plan, and use your full financial force to slay those giant debts later.
Learn more about setting up a debt payment plan.
Another common approach to paying off credit card debt is using the Debt Avalanche strategy, which tackles credit card debts in order of interest rate. The Debt Avalanche method may take longer, but it helps you save on interest in the long run.
|Snowball vs. Avalanche|
|Debt Snowball||Debt Avalanche|
|Smallest balance first||Highest interest rate first|
|Keep making minimum payments on all cards||Keep making minimum payments on all cards|
|After smallest balance is paid off, apply that money to the next smallest credit card balance||After highest interest debt is paid off, apply that amount to next card with the highest interest|
|Continue until all balances are paid off||Continue until all balances are paid off|
4. Stick to the Plan
Once you have a plan in place, the final step is to follow it closely. It may also be necessary to adjust your plan every few months—for example, if you double up on payments or temporarily pause extra payments on your debt. Fine-tuning your debt plan gives you a better estimate of your progress toward your goal.
Once you know how much you owe—and the cost you’re paying—you may consider taking advantage of a credit card balance transfer offer to save money. CalcXML has a basic calculator that can help you estimate your balance transfer savings potential.
Balance Transfer Cards and Personal Loans
You don’t need much to manage and eliminate debt beyond the desire to do it and some simple spreadsheets and calculators like those we’ve shared. That said, consolidating high-interest debt into lower interest loans can help you get out of debt, too.
Balance Transfer Credit Cards
Consolidating balances onto a lower-interest rate balance transfer credit card can make it easier to pay off your debt. When you’re shopping around, look for a card with a long promotional period and, ideally, a low balance-transfer fee. Two great options are the Citi Simplicity and SunTrust Prime Rewards Card.
The Citi Simplicity has a longer-than-average promotional period of 18 months for transferred balances. That’s 1.5 years to fully pay off your balance.
The SunTrust Prime Rewards Card is another great option, which sets your interest rate at the Prime Rate for three years and charges no balance transfer fee as long as you transfer the balance within 60 days of opening the card.
While paying off your credit card debt, there’s no need to close your account or cut up your cards. Instead, just consider removing cards from your wallet and only paying for purchases with cash until you’re out of debt. This will help prevent you from using your card at a store and adding to the balance you’re aiming to pay off.
Consolidating balances with a low-interest-rate personal loan is an alternative to a balance-transfer credit card. For one thing, you won’t be tempted to charge new purchases with it. For another, you’ll have a fixed monthly payment, which can make budgeting easier and more certain.
We collect data on dozens of personal loans and lenders and have reviewed many of them. Here are a couple of lists to help you narrow down your options:
- Best Personal Loans: Start here for a mix of lenders, with a mix of rates, loan amounts, and approval requirements.
- Best Personal Loans for Fair Credit: Start here if your credit score isn’t “good” or “excellent.”
Tools and Resources
These calculators, spreadsheets, and other resources can guide you through your debt-reduction plan.
Learn More About It
- What Is the Debt Snowball Payment Strategy? The Debt Snowball method focuses on paying the smallest debts first so you can build confidence.
- What Is the Debt Avalanche Payment Strategy? The Debt Avalanche strategy prioritizes debts with the highest interest rate so you save money on finance charges.
Calculators and Spreadsheets
- What’s the Cost Debt Snowball Calculator: Allows you to compare debt payoff options—like Debt Snowball vs. Debt Avalanche—and gives you a complete breakdown of the monthly payment for each debt.
- The Vertex 42 Debt Tracker Spreadsheet is available as a downloadable Excel spreadsheet or cloud-accessible Google Sheet. You can enter up to 10 debts and choose from seven different debt payoff strategies, including the Debt Snowball.
- The Balance’s Credit Card Debt Worksheet helps you consolidate all your loan details in one place. This is a critical step in building your debt-reduction plan.
- The Balance’s Simple Budget Planner (details here) can help you monitor your income and spending so you can make better financial decisions—including where to spend less so you can direct more of your money to debt reduction.
Making Your Credit Card Debt Payoff Plan a Success
Paying off a large amount of credit card debt can feel intimidating at first, but once you’ve put a plan in place, you’ll see that tackling your debt is doable. It might take a few months or a few years, depending on your finances and your debt load, but following your plan diligently will pay off in the long run.
Qiyan Ong, et al. "Reducing Debt Improves Cognitive Functioning. and Changes Decision-Making in the Poor." PNAS. Accessed Nov. 16, 2020.
Elizabeth Sweet, et al. “The High Price of Debt: Household Financial Debt and Its Impact on Mental and Physical Health.” Social Science & Medicine. Accessed Nov. 16, 2020.