How to pay off credit card debt: 6 winning strategies

Paying off credit card debt may feel impossible, but it can be done. With a well-thought-out plan and strategy in place, you can make consistent progress toward paying down your balances until you eventually become debt-free.

Know that paying off all of your credit card debt does not hurt your credit score in the long term. Yes, your credit score may temporarily dip after completely paying off a balance because your payment history makes up 35% of your credit score as November 2022 data from BECU explains. But your score should increase over time as long as you continue good credit-building habits.

Here’s a look at six tried-and-true strategies to help you pay down your credit card debt, as well as some tips for avoiding credit card debt in the future.

A debt consolidation loan can be a great way to pay down and eliminate credit card balances.

Here’s what to know to pay off credit card debt:

• Pay off the highest-interest debt first
• Pay off the smallest balance first
• Take out a debt consolidation loan
• Use a balance transfer credit card
• Seek help through debt relief
• Borrow money from family or friends
• How to avoid future credit card debt

1. Pay off the highest-interest debt first

Best for those who want to save on interest charges

Known as the debt avalanche method, this strategy involves making the minimum monthly payments on all your credit cards, except for the one with the highest interest rate.

For instance, if you have a $2,000 balance on a credit card with a 25% APR and another card with a $1,000 balance and an 18% APR, focus on making as large a payment as possible on the highest-interest card to pay down that balance quickly. Then, once that card has been paid off, you’ll move on to the card with the next-highest rate.

You’ll continue this process until all your credit card balances have been paid in full.

Benefits

The biggest benefit to the debt avalanche method is that it’ll save you money on total interest charges. By tackling your highest-interest debt first, you’ll ensure that less interest accrues on your unpaid balances over time. Plus, since the total amount that you’ll owe will be smaller, you should be able to pay off your credit cards sooner, assuming you’re able to keep making the payments consistently.

Drawbacks

Unfortunately, it can take longer to see substantial progress with this method, especially if the balance on your highest-interest credit card is fairly large. If you’re someone who tends to get discouraged when you don’t see results right away, you may be better suited to the next debt payoff strategy.

SURVEY: 40% OF MILLENNIALS SAY CREDIT CARD DEBT IS THEIR BIGGEST FINANCIAL SETBACK

2. Pay off the smallest balance first

Best for those who like to see quick results

With the debt snowball method, you’ll make the minimum monthly payment on all your credit cards, except for the one with the smallest balance. On that card, you’ll want to make the largest possible payment. Then, once you’ve paid off that card, move on to your card with the next-smallest balance until you’re completely debt-free.

As an example, if you have a $6,000 balance on one credit card, a $5,000 balance on a second card and a $2,000 balance on your third card, paying off the $6,000 balance might seem more daunting in your overall $13,000 debt balance. But if you tackle the $2,000 balance first, you may feel that you’ve at least eliminated one total card.

Benefits

The biggest benefit to the debt snowball method is that it provides you with quick results. It’s meant to incentivize you to continue on your debt payoff journey by offering you a series of small wins at the beginning. Even if you only pay off a small balance, your confidence will likely grow as you make additional progress.

Drawbacks

The drawback of the debt snowball method is that you’ll likely pay more in interest charges over time. Those extra charges will increase the total amount of money that you’ll pay to your creditors. They can also cause your debt payoff journey to take longer.

3. Take out a debt consolidation loan

Best for those who are juggling multiple debt payments

A debt consolidation loan is a personal loan that you use to pay off high-interest debt, commonly from credit cards, at a lower interest rate. Therefore, this type of loan would be best if you have various debt accounts and would like a single monthly payment. You won’t be paying multiple credit card companies, and you can cut down on interest rates.

For example, let’s say you have three outstanding credit card balances:

• First credit card: $2,000 balance with an 18% APR
• Second card: $3,000 balance with a 19% APR
• Third card: $1,000 balance with a 19% APR your total interest costs in a year for these three cards would be $624. But if you take out a personal loan for $6,000 with a 10% APR on a 1-year repayment term, your total interest costs would be $330.

To take out a debt consolidation loan, you’ll apply for a new loan with a lender. Then, if you’re approved, you’ll use the funds from the loan to pay off your existing credit card balances. Some personal loan lenders will pay your creditors for you directly.

Benefits

The main benefit of a debt consolidation loan is that it allows you to streamline multiple payments into one. If you’re having trouble keeping up with your minimum payments and due dates, this may be a good option for you. Plus, since personal loans often have lower interest rates than credit cards, there’s a good chance you’ll save money on interest charges over time.

Drawbacks

It’s important to note that debt consolidation loans often come with additional fees. Depending on the terms of your loan, the lender may charge an origination fee, which is an upfront fee that covers the administrative costs of underwriting the new loan.

Origination fees typically range from 1% to 8% of the total loan amount, and the fee will be deducted from your loan funds when they’re disbursed. In other cases, you may have to pay a prepayment penalty if you decide to pay off your loan early.

CREDIT CARD CONSOLIDATION MAY SAVE YOU THOUSANDS AS PERSONAL LOAN RATES ARE AT RECORD LOWS

4. Use a balance transfer credit card

Best for those with high credit scores

Balance transfer credit cards allow you to transfer your balances from an existing high-interest credit card to a new card with a lower interest rate. Balance transfer cards often come with a 0% introductory APR for a certain period of time and some cards may even waive any balance transfer fees during the promotional period. To use this debt payoff method, you’ll first need to apply for a new credit card and get approved.

Benefits

The biggest benefit of a balance transfer credit card is the introductory promotional rate. For a limited time, you’ll have the ability to pay down your new balance without any interest accruing on it. This can help you make more progress in paying down your balance.

Drawbacks

Balance transfer credit cards are typically only available to borrowers who have higher credit scores. If you have a lower score, you may need to look into other options, such as:

Debt management programs: You can usually discover a debt management plan through a credit counseling or debt relief agency, such as Clearpoint. Within a Clearpoint plan, a credit counselor requests lenders to get you loans with cheaper payments, lower APRs, longer repayment terms and waived fees for your financial situation.

Just know that this option affects your credit score because it is reported to credit bureaus and shows financial instability.

Secured personal loans: If you have a poor or thin credit history, you have the option of a secured loan. With this type of loan, you present something else of value in place of your credit score: your collateral, such as a home.

On the downside, your collateral could be seized if you default on the loan. Make sure the loan amount you take out is one that you can handle.

Additionally, you should consider the promotional timeframe. After the introductory interest rate period is over, your rate will adjust to the card’s regular rate, which could be higher than the rates you were paying on your original credit cards. Balance transfer cards often come with balance transfer fees, too — typically 3% to 5% of each amount you transfer.

HOW DO BALANCE TRANSFERS AFFECT YOUR CREDIT SCORE?

5. Seek help through debt relief

Best for those whose debt has become unmanageable

Seeking debt relief involves hiring a third party to negotiate with your creditors on your behalf. Debt relief typically comes in one of three forms: a debt management plan, debt settlement or bankruptcy. With these methods, the third party can help you negotiate repayment, which may be less than the total amount that you owe in some cases.

Benefits

Where debt relief is concerned, the main benefit is that there will be less legwork for you. Negotiating with creditors often requires making multiple phone calls and sometimes even sending letters. When you hire a third party, much of that work is handled for you.

Drawbacks

This method also has multiple drawbacks. To start, debt settlement companies often charge hefty fees to negotiate your debt for you. The company may also instruct you to stop making payments on your credit cards, which can negatively affect your credit score when the missed payments show up on your credit report. Lastly, some debt settlement companies are disreputable. If you’re thinking about going this route, be sure to do plenty of research. To make sure you’re dealing with a legitimate company, contact your state Attorney General.

6. Borrow money from family or friends

Best for those who don’t qualify for other debt payoff options

If you can’t make any of the other debt payoff options work, you may want to consider borrowing money from family and friends. If you choose this option, it’s a good idea to carefully evaluate who you’ll ask to lend you funds, to draw up a repayment agreement and to prioritize making any necessary payments.

Benefits

The access to flexible repayment terms is undoubtedly the biggest benefit of borrowing money from loved ones. Those in your inner circle will often be willing to give you a lower-than-normal interest rate, if they charge you any interest at all. They may also be flexible about your repayment timeline.

Drawbacks

Too often, money has the potential to ruin relationships. If you fail to pay back what you owe, it will very likely put a strain on your relationship.

How to avoid future credit card debt

Now that you have a better idea of how to pay off existing credit card debt, the next step is to learn how to avoid accruing more debt in the future. Here are some strategies to help you stay debt-free:

• Spend what you can afford. While credit cards allow you to finance purchases and pay them off later, it’s a better idea to treat your credit cards like cash. If you only spend as much as you have in your bank account, you’ll be able to pay off your balances in full and avoid accruing interest or charging up new debts.
• Pay as much as you can. Even if you can’t pay off your balances in full every month, you should make the largest payment possible. When you only make the minimum payment, it allows a significant amount of interest charges to accrue, which can cost you more money over time.
• Pay on time. When you make a payment late, interest charges start to add up. You also may have to pay late fees. In addition to costing you money, late payments can also negatively affect your credit score.