How to Reduce Your Average Monthly Credit Card Payments

Get out of debt by focusing on your most expensive card first

Credit cards
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If you've always focused on the minimum payment due for your credit cards, rather than the total balance, you're not alone: many people use their credit cards this way, paying only the minimum (or perhaps a bit more if they think they can afford it that month).

In fact, the average American household with a credit card balance owes around $5,700, and total revolving debt (which consists mainly of credit card debt) in the U.S. is just over $1 trillion, according to the Federal Reserve. Forty-one percent of all American households carry some type of credit card debt.

While credit cards can offer convenience, flexibility and potentially, rewards, paying back what you've borrowed can be a challenge when you have a high interest rate. Not only that but carrying substantial balances across your cards can negatively impact your credit score. Fortunately, there are strategies you can use to begin paying down your balance, which in turn (eventually) will reduce your average monthly credit card payments.

What Are Credit Card Minimum Payments?

Many U.S. banks require credit card holders to pay 4% of their balance every month (this was increased from 2% of the monthly balance years ago following the financial meltdown in 2007 to 2009). At the time of the increase, this produced some sticker shock (and even worse effects for those who had overextended themselves financially). But, there is a silver lining to higher minimum payments.

Look at it this way: paying 2% of your balance each month barely covers the interest, and leaves very little to apply to your actual balance. That's why, if you owe $2,000 or more, and you only pay the minimum balance of 2% each month, it will take you approximately 30 years to pay off your balance even if you never charge another penny.

By paying 4% every month, you pay enough to cover the interest and have enough left over so you could pay off your balance in 10 to 12 years if you don't add any new charges. That's good because you'll get out of debt sooner and you'll also save money by paying less in interest over the long-term.

How to Pay Down Credit Cards Faster

Ideally, you should pay your credit card balance in full each month to avoid interest charges. But if you can't do that, paying more than the minimum due is the next best thing.

Now, this isn't always easy, depending on what your budget allows. Many people get discouraged when they take a close look at their finances, especially if they're stretched thin. But you don't have to boost your payments by hundreds of dollars each month — putting just a little bit of extra money toward a credit card balance can add up surprisingly quickly.

Here are the steps you should take to reduce your average credit card minimums:

Review the Interest Rate for Each Card

Go through your credit cards (most people have more than one with a balance) and determine which one carries the highest interest rate. Then, rank the remaining cards from the next highest interest rate down, putting the card with the lowest APR at the bottom.

Review Your Budget

Next, go over your monthly income and spending line by line to determine whether there are any expenses you can reduce or cut out altogether. Look at both large expenses and small ones, including

  • Recurring subscriptions for services you don't use
  • Bank fees
  • Services you may pay when paying bills
  • Small fees that have increased over time

Also, take time to negotiate larger expenses, such as your car insurance premiums. It's possible that you may be able to get a lower rate by bundling your car insurance with your homeowner's insurance, for example. The goal is to find any extra dollars and cents you could apply to your credit card balances.

If you're not sure what you're spending each month, consider using a budgeting app you can link to your checking and credit card accounts to monitor your expenses.

Consider How You Can Reduce Your Interest Rate

Finding extra money to apply to credit card debt can reduce your payments but you should also try to reduce your APR if you can. There are a couple of ways you can do this. The first is simply calling the credit card issuer and asking for a rate reduction. If you've been a good customer and consistently pay on time, they may be willing to honor your request.

The other option is transferring the balance to a card with a lower or 0% introductory APR. This can help lower your payment and more of your monthly payment will go to the principal balance each month. That can help you pay your debt off faster while saving money.

Check balance transfer fees, which can add 2% to 5% to what you owe once the transfer is complete.

Create a Debt Repayment Ladder

Pull out your list of credit cards and make note of the minimum balance for each one. Now, add up the amount of extra money you were able to find in your budget. Add this number to the minimum due for the card with the highest interest rate at the top of your list.

This is what you'll pay to this card every month while paying the minimums on the rest of your card. Once you eliminate the balance on the first card, roll the payment you were making to it over to the next card on the list. Continue to do that, working your way down your debt ladder until your credit card balances are all zeroed out. This is called the debt avalanche method.

Put the Brakes on New Purchases

While you're in the midst of this process, think twice about adding any debt to your credit cards. Consider setting aside one card (hopefully one with no balance on it) for household expenditures, budget for those expenditures, and pay the full balance due on that card every month. Better yet, stop using credit cards altogether if you can. This way, you can pay out less in credit card minimums each month while avoiding new debt.