Photo: Jeff Rose
No one likes being in Credit card Debt. It’s one of the easiest payment methods for overspending, and yet is the most difficult to pay off because of the high interest rates and other fees.
So how can you pay off credit card debt and remain free of it forever? These steps will show you how.
Step 1: Face the Facts
This will likely be the most difficult step (aside from staying motivated during the debt payment process). But before you can move forward, you have to know where you stand.
Do you know exactly how much credit card debt you have? How many accounts have balances? Are you up to date on payments, or slightly behind? Use a piece of paper or spreadsheet to list all your credit cards, along with the minimum payments and interest rates.
Then total up all the balances (and try not to stress out too much). Seeing this number in black and white can be very scary. But don’t worry, there’s a light at the end of the tunnel, if you can just stick with it.
Step 2: Stop Paying With Credit Cards
You’ll never reach your goal of becoming free of credit card debt if you continue using them. Remove all the cards from your wallet and stop using them. You can always integrate credit cards back into your spending cycle (if you want bonus points or rewards), but for now it’s cash and debit cards only.
If you have bills that are automatically charged to your credit card, go online and change the payment method. Switch everything over to being paid with either cash, debit card, or automatic debit from your checking account until you’ve created more stable spending habits.
Tackling any sort of debt requires a commitment not to add to the pile. It also takes a few months for a new budget plan to start working, so give it adequate time to develop.
Step 3: Find Ways to Lower the Payments
Nothing kills your motivation or progress like paying exorbitant credit card interest rates. Even if you don’t miss any payments or go over your credit limit, the interest rate on a credit card account starts out very high compared to other types of debts and loans.
Before creating a plan to tackle your credit card debt, start by finding ways to lower your monthly payment by:
Negotiating for lower interest rates. Most of the time, a quick call to your credit card company, armed with the details and a simple ask, will result in a lower interest rate. Don’t be afraid to negotiate, and try to sell them on why you want to decrease your rate. Make sure you remind them how long you’ve been a customer, and your plans to continue with them. Be persistent but polite.
Apply for a balance transfer. If you have good credit, you may be able to take advantage of a 0% interest rate promotion from another credit card. This is not a long-term solution, but it could give you an extra 12 months to pay down your debt with low to no interest fees. A couple of things to consider are the balance transfer fees and the promotional time period. You don’t want to get stuck with accrued interest charges once the promotion has expired.
Consider debt consolidation. If you’ve fallen behind on your payments or have poor credit, a debt consolidation plan might be the best solution (not to be confused with debt settlement or debt management plans). Several reputable companies offer assistance for paying off debts at a much lower rate than a credit card company’s offer.
With any of the above options, the overall goal is to lower the monthly payments and interest rate so you can get out of debt faster. More of your payments will go toward the principal balance instead of getting sucked into interest fees.
Also, you want to create better spending habits and not abuse these methods.
Step 4: Choose the Correct Debt Payment Plan
Now that you have a better handle on the exact situation of each credit card, choose a plan of attack to get out of debt — for good.
Before choosing, you must first list your debts according to the strategy that’s most likely to work for you. The most popular solutions include:
The High Interest Approach (or Debt Avalanche). List your debts from the highest interest rate to the lowest, and tackle the first one on the list.
The Debt Snowball Effect. List your balances from smallest to largest. Then create a plan to pay everything you can toward the lowest balance while still paying the minimum balances on all other accounts. Once the first balance is paid off, roll over that entire payment and add it to the minimum on the next debt (while continuing to make minimum payments on the other debts). Once you tackle the second account on the list, take that bigger payment and start putting it toward the next debt, and so on.
The Debt Snowflake Method. List your accounts from the smallest balance to the largest one. Then use income from weekend jobs, overtime at work, freelance jobs, bonuses, and extra cash to pay down your debts quickly. These smaller amounts are paid more frequently, allowing for quick, tiny victories.
Repaying credit card debt is not an overnight thing, and it will likely take many months (even years). So don’t give up too soon! Stick with one of these methods for a few months before switching to find a more successful one if it’s not working for you.
Step 5: Evaluate Your Budget
If you’re not already living on a budget each month, now’s the time to create one. And if you do have a budget, now’s the perfect time to enforce it even more.
What can you do to eliminate unnecessary expenses? Do you have items to sell that you no longer need? Can you live a simpler life to pay off credit card debt faster?
Work your new debt payment strategy into your budget or spending plan. Go through your financial habits and budget thoroughly, then evaluate where you can make changes and how your debt payoff plan will be integrated into this.
What do you have to give up to pay off your debts faster? Or is budgeting not an issue and you have a different problem instead?
This is something I discovered last summer. I needed to rein in my spending habits, so I went on a 60-day cash spending challenge to evaluate everything. I no longer made purchases with a credit card, and instead only used a debit card or direct transfers from my bank.
This taught me a lot about my spending, prioritizing my expenses, and what my true goals were. I discovered that instead of not being able to stick to a budget (which I thought was the problem), the real issue was not having enough income to allot to certain categories.
Once you evaluate your spending, you too may notice other issues surface.
Step 6: Make Payments More Frequently
Aside from increasing your income, another way to chop down your debt is to make payments more often. Similar to the snowflake method mentioned above, there are ways to pay off your balance quicker without adding more money to your payment amount.
Here are a few examples:
Make biweekly payments. Instead of sending in a payment once a month, make payments every two weeks. You’ll pay less interest over time and knock several months (or years) off your repayment schedule.Round up the payments. Simply round up your payments to the nearest $10 amount. For example: If your regular credit card payment is $105.78, round up the payment to $110. If you want to take it a step further, you could even bump up your payments by an extra $50 or $100. Over time, these small amounts will really add up.Use a bonus or tax refund. Any time you receive extra money you weren’t expecting (like a bonus, birthday money, or tax refund), put it toward your credit card balance. This is often called “found money.” Any income you find that’s in addition to your regular monthly payments can be added to help decrease the balance.
A few other ideas that can really knock down your debt balance include selling items you no longer use or need for extra money, taking advantage of going paperless (some companies offer an interest discount), and using a raise at your job to pay off the balance faster.
Step 7: Find a Community for Support
It’s often a lot easier to choose a debt payoff plan than to stick to that strategy long-term. This is when your self-discipline will have to kick in, and you’ll need support to stay motivated.
Seek out an accountability partner, or a group of like-minded individuals, who can offer support and guidance. Find a forum where you feel supported and can talk about your frustrations as well as your triumphs.
There are some popular financial blogs (including this one) that have strong, supportive communities where you can ask questions and find ideas to stay inspired. You could also join a private Facebook group or LinkedIn community that enables you to stop feeling so alone during your debt journey.
Step 8: Track Your Progress
Once you’ve enacted the above steps and chosen the right debt repayment strategy, the next step is to continue tracking your progress. You can also choose from a wide variety of online or mobile applications to help you pay off debt in a more convenient and on-the-go manner.
With simple charts, updated payment schedules, and a debt-free target date, most smartphone apps and online tools make it easy to see how far you’ve come and how far you still have to go.
I found a debt-free goal very motivating, and as the date approached I wanted to put all my efforts toward paying off debt even faster. Because of this I was able to pay off my credit card debt four months earlier than my original debt-free date.
Aside from that, though, tracking your progress is key to staying on track. It’s easy to forget how many payments you’ve made, or which accounts are already paid off. So don’t miss this step!
Step 9: Perform Quarterly Reviews
Businesses perform quarterly reviews for a reason. They need to evaluate their methods, make sure their plan is still on track, and find ways to improve upon the previous few months. Likewise, you can implement a quarterly review, or reboot, for your credit card debt payoff plan.
Are there certain expenses you can still cut back? Did your budget suffer from lifestyle creep? Are there additional ways you can bring in more money, or increase your income?
It’s easy to get off track after just a few months of swearing to pay off your credit cards and creating a plan of action. But in order to be successful for the long term, you need to constantly adjust your settings and review your actions.
This strategy is also usually very encouraging because you can see the progress you’ve made toward your goal and the small habits you’ve changed along the way. Put a reminder in your calendar or in your phone and take a few hours one afternoon to perform a quarterly reboot.
Step 10: Celebrate the Small Wins
Much like rewarding yourself for completing a big project at work or getting a good grade in school, celebrating your small victories is a big part of being free from credit card debt. It’s often a slow, difficult process to pay down your mountain of debt, but setting small milestones — and celebrating when you reach them — can go a long way to eliminating credit card debt.
Nothing is more encouraging than paying off an entire credit card’s balance, but what about reaching the $1,000 balance mark? That’s a big goal, too, and deserves to be celebrated.
Do something small to reward yourself, like buying a cup of coffee or spending a night out with friends. Just be sure to set a limit on yourself, like anything in your budget, so you don’t overspend and undo all the hard work you’ve accomplished recently.
By implementing these 10 steps, you’ll be able not only to be free from credit card debt but create lifelong habits that allow you to eliminate this debt for good.
(c) Carrie Smith