How to Pay off Credit Card Debt

If you are struggling to pay off your credit card bill, you are not alone. Credit card balances grew (opens in new tab)  13% over the past year, the fastest yearly growth since 2002. And inflation paired with higher interest rates may further complicate your efforts to avoid credit card debt.  

After years of pandemic-related restrictions, it's easy to understand the urge to spend more on experiences and make up for lost time. Some of us pay our credit cards in full every month and never carry a balance. However, that’s not the case for everyone, especially millennials and older adults (opens in new tab). If you’re carrying credit card debt (opens in new tab), consider these strategies to eliminate or reduce what you owe—before it’s too late.

Know Your Credit Score

To pay off credit card debt, you need to start with your credit score to assess your options. Checking your credit score (opens in new tab), also called FICO, will not damage your credit. If lenders consider you a good credit risk, you will have more options than if you have bad credit. Lenders generally consider FICO scores under 580 as “bad” and under 670 as “fair.”

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Take Stock of Your Debt

If you have balances on multiple credit cards, make a list that shows how much you owe on each, its interest rate, and the minimum monthly payment for each. A spreadsheet provides a handy way to update your progress, but pen and paper work just as well.

Balance-Transfer Cards for Good Credit Scores

If you have a good credit score (opens in new tab), a balance transfer could help you get out from under your debt. Many banks offer balance-transfer cards (opens in new tab) for new customers. These cards often come with an introductory 0% annual percentage rate (APR (opens in new tab)) for a limited amount of time—anywhere from 12 to 21 months, depending on the card.

There are three pitfalls to avoid when using balance-transfer cards.

First, be sure to pay off the balance before the introductory rate expires to avoid sliding again into debt. And resist the temptation to use the balance-transfer card to make new purchases, says Beverly Harzog, credit expert and author of Confessions of a Credit Junkie. You want to use the card to get out of debt, not add to it, she says.

Second, pay attention to the balance transfer fee, usually between 3% - 5%. If you are transferring $10,000, you might pay up to $500 in fees.  

Finally, if you cancel your old card and your new balance-transfer card has a lower credit limit, it could affect your credit utilization ratio. This ratio measures how much of your allowed credit you are using on a given card. Racking up too much credit relative to your credit limit could lower your credit score, says Gerri Detweiler, author of The Ultimate Credit Handbook.

Options for Poor or Bad Credit

If your credit score isn’t high enough to meet the criteria for a 0% introductory rate on a balance-transfer card, you may still qualify for a card with an introductory APR that’s lower than your current card’s rate, Harzog says. Another option is a debt-consolidation loan from a bank or credit union with a rate that’s lower than the rate you’re paying on your high-interest credit cards.

Strategies to Pay Off Credit Card Debt

When you have balances on multiple credit cards, there are three approaches you can use to tackle the debt. The first is the “avalanche” approach. Begin with your cards that have the highest interest rates and the highest balances. Make the minimum payments on the lower-interest cards while devoting most of your available funds to paying down high-interest balances.

While the avalanche approach makes the most sense from a mathematical point of view, some people choose the “snowball” approach, paying off the low-balance debts first. Paying off your low-balance cards may give you the motivation you need to pay off all of your debts, even if it costs you more in interest.

Finally, there’s the “blizzard” approach, in which you start with the snowball and move to the avalanche. Begin by paying off one low-balance card so you have one success under your belt, then move on to those with higher rates.

Paying off your balances will make it difficult to save. But try to put aside enough in an emergency fund to cover three months’ worth of expenses. When you’ve paid off your debts, you can ramp up your savings so you’ll be prepared for unexpected expenses, which will reduce the risk of falling back into debt.