How to Pay Off Credit Card Debt

If the outstanding balance on your credit card has ballooned to uncomfortable heights, it’s time to change your habits and start paying that debt off.

More than half of all Americans are currently aren’t managing to pay their credit card bills in full each month, J.D. Power found recently, helping explain why we now owe a record $1 trillion in credit card debt.

Paying off your cards in full each month can be challenging—especially once you’ve started racking up debts—but adopting one or more of the following strategies, from requesting a lower interest rate to getting a balance-transfer card, will help.

You’ll also save yourself some interest, and a few headaches in the process.

1. Stop using your credit cards

Credit cards—relentlessly marketed and oh-so-easy-to-use—have a way of worming their way into your wallet. The average American consumer has 3.8 credit cards, according to Experian. And the plastic tends to accumulate over time. Younger Americans have fewer than two credit cards, Experian found, while those close to retirement age have nearly five.

To climb out of a hole, you have to stop digging. Switch to paying bills and other expenses with cash or a debit card rather than charging them, says credit expert Beverly Harzog, author of The Debt Escape Plan.

This will allow you to then determine exactly how much you owe on every credit card and the interest rate you’re paying on each outstanding balance. “People are often surprised at how much debt they have in total,” says Harzog.

2. Make a budget

To keep from reaching for your plastic, review your monthly income and costs. This way you’ll know you have enough money in your accounts to handle the move to paying all your expenses in real time and it will help you spot places to cut back.

Budgeting apps offered by Mint and NerdWallet (both WSJ Buy Side top picks for Best Budgeting Apps) will do a lot of this tedious tracking work for you making it easy to identify problem areas (though some people still prefer budgeting by hand).

3. Request an interest rate reduction

Call each of your credit card issuers and ask for a lower APR, advises Todd Christensen, education manager with Debt Reduction Services, a nonprofit debt counseling agency. Surveys show that most people who request a more favorable interest rate get one. Seven in 10 cardholders saw such success in 2022, receiving a 7 percentage point reduction, on average (for example reducing a TK% APR to TK%). That change alone could shorten your repayment time frame and interest burden, saving you thousands.

Your odds of scoring a discount improve if you’ve been a card user for a few years, pay on time and have a good credit score. But you can also try asking your issuer to match a better rate they may be advertising to new users or that of a competitor’s card you qualify for.

4. Pay more than the minimum

Your credit card company requires you to pay a fraction of your outstanding balance each month, but you should look at this sum as the smallest contribution you can possibly make. Bump the amount you pay each month beyond that minimum and you’ll reach your $0 balance goal faster and save big on interest costs.

For instance, if you owe $10,000 on a credit card with an interest rate of 21%—the average APR—and make a monthly minimum payment of $300, it would take you more than four years and $5,140 in interest charges to pay it off. But upping that monthly repayment by $50 will get you out of debt 11 months sooner and save you $1,156 in interest (assuming you stop using the card).

5. Try the snowball or avalanche method

If you have debt across multiple credit cards, eliminating one balance at a time can help you stay motivated. There are two common approaches: the snowball method and the avalanche method. Both require that you contribute extra cash toward one particular card’s balance while making the minimum monthly payment across all others. Where they differ is in which debt takes priority.

Using the snowball method, you’ll concentrate your extra payments on the credit card with the lowest balance first. When that debt is clear, you’ll add the total payment to the minimum on the card with the second-lowest balance, then the third, and so on until you no longer owe anything. The logic behind this approach: Small early wins build momentum, boost confidence, and encourage people to stick with the sometimes lengthy process of debt reduction.

“If you’re more concerned about your credit scores then paying off the smaller balances is the better move because scoring models penalize you for having more credit cards with balances,” says credit expert John Ulzheimer, formerly of FICO and Equifax.

But the avalanche method is usually the smarter move from a financial perspective, says Ulzheimer, as it reduces interest costs fastest. With this strategy, you’ll tackle the credit card with the highest interest rate first. Once you’ve paid off your costliest debt, you’ll then work on paying down the card charging the second-highest APR, continuing this pattern until you’re debt-free across all cards.

Of course, you don’t have to stick to one or the other throughout the duration of your debt repayment. Harzog advocates a hybrid option, the blizzard method, which involves paying off the smallest balance first for that initial rush of success before moving to the card with the highest rate.

6. Apply for a balance-transfer credit card

Many credit card issuers will allow you to move the outstanding balance from one or more of your existing cards onto a new one and finance that debt at a 0% interest rate for a limited time, typically between 12 and 21 months. This temporary break gives you a chance to pay off your balance without new interest charges pushing you deeper into debt. “This is the best way to get out of debt if you still have a good credit score,” says Harzog.

Credit card companies usually require that you move the debt within a set period, like the first 60 days, and charge a fee to complete the balance transfer, commonly between 3% and 5% of the moved amount. To qualify for a top balance-transfer card, you’ll need a strong credit score, 670 or higher usually. And you’ll want to be able to pay off the debt in full before the 0% intro rate ends as these cards can come with regular APRs as high as 30%, potentially leaving you with a larger interest expense than before you switched.

But the biggest danger with using a balance-transfer card comes from the temptation to spend again. Many of the options with the longest 0% APRs also come with similarly generous rates for new purchases and moving the debt frees up the credit limit on your prior cards as well. “Run up large balances, again, on the pre-existing cards, and then you’re in debt twice over,” says Ulzheimer.

7. Consider a credit card debt consolidation loan

For those with lower credit scores who do not qualify for the best balance-transfer cards or whose total debt exceeds the credit limit they’d get with such a card, there are a couple of other ways to consolidate your debt into a single payment and nab a lower interest rate.

Debt consolidation loans are a type of personal loan tailor made for this problem. You borrow a sum equal to your total outstanding debt and use that to pay off your credit cards.

With this loan you can usually consolidate a larger amount of debt in one place than you can with a balance transfer card. Interest rates are usually fixed and potentially lower than what credit cards charge. And you pay a fixed monthly amount spread between two and seven years, making it easier to budget. Additionally, it can improve your credit score. The amount you owe and the portion of your available credit you’re actively using makes up 30% of your FICO score, so if you eliminate the debt on multiple credit cards with an installment loan, your “utilization drops like a stone,” says Ulzheimer.

Having a strong credit score and a longer repayment timeline will help you nab the most favorable terms on a debt consolidation loan. For instance, those with credit scores of 720 or higher could find APRs as low as 5% but the average rate, according to recent online quotes, sits around 14%. Borrowers with poor credit, 630 or below, could end up paying rates above 20% or more than their credit card’s APR. If you’re offered a low-interest rate, check the fine print to be sure it isn’t a teaser rate that will last a short while before jumping up, advises the Consumer Financial Protection Bureau.

Lenders also commonly charge an origination fee between 1% and 5% of the borrowed sum. Additionally, some lenders also tack on prepayment penalties if you attempt to pay off the loan ahead of schedule. However, those with top credit scores may be able to find financing options that forgo this extra cost.

8. Take out a home-equity loan

If you are a homeowner with a sizable equity stake in your home—typically 20% or more—you may have another consolidation option: a home-equity loan. Also known as second mortgages, home-equity loans typically come with lower interest rates than debt-consolidation loans and credit cards, because your home is used as collateral.

Home-equity loans have a fixed interest rate and payment term, usually between five and 30 years, making it easier to factor into your budget than a credit card payment.

Most lenders require you to borrow at least $10,000. And you’ll pay closing costs ranging between 1% and 5% of the loan amount. So those with smaller balances will do better with other debt repayment options.

The other big downside to home-equity loans: your house is on the line. Miss your loan payments and the lender could begin foreclosure proceedings. And even if you do make timely payments, using the equity in your home puts you at risk of owing more than the home is worth should home prices fall, making it harder to sell or refinance in the future.

9. Work with a nonprofit credit counseling agency

If you’re struggling to make the minimum credit card payment required each month or already behind, reach out to a nonprofit credit counseling service for assistance. These organizations, typically members of the Financial Counseling Association of America or the National Foundation for Credit Counseling, will review your finances and credit card debt to help you better manage your budget and repayments. Many will offer a free initial counseling session that lasts about an hour, but charge for further follow-up sessions or to create a debt management plan for you.

With a debt management plan, you’ll make a single monthly payment to the credit counseling organization which then distributes that money to your creditors. Credit counselors can help prevent credit card companies from pursuing collection fees or charging you late fees while on such a plan and may negotiate on your behalf for a lower interest rate, smaller monthly payments or a different repayment schedule. However, they will not work to reduce your total debt owed.

You’ll typically need to pay an upfront setup fee as well as an ongoing monthly fee while on a debt management plan. Each state has different rules capping how much these fees can be. Generally, the activation fee and monthly fee range between $35 to $60, with plans running for four to five years, says Bruce McClary, senior vice president of membership for the National Foundation for Credit Counseling. People dealing with hardship or whose income is below the federal poverty level can qualify for waived or reduced fees.

Participating in a debt management plan also restricts your access to credit by requiring you to close or stop using your credit cards and refrain from applying for new lines of credit.

Debt relief

Don’t confuse nonprofit credit counseling with for-profit companies that seem to promise an easier way out.

There are numerous debt settlement or debt relief companies that claim they can lower your debt, but using such services could put you deeper in the hole and damage your credit score, warns the Consumer Financial Protection Bureau.

Many of these businesses charge significant fees and may advise you to stop paying your bills so creditors will be more willing to negotiate and accept a lower sum. But that’s a risky move, according to the CFPB. Card companies can, and often do, refuse to work with them, leading to compounding late fees and other penalty charges, debt collection efforts and even lawsuits.

Says McClary: “In some cases, you may be better off skipping debt settlement and going into bankruptcy.”

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