Strategies to help pay off your credit card debt

Not all debt is created equal. Some debt can help you effectively manage your overall finances and build your wealth over time. This is often called “good debt,” and it includes things like education loans and mortgages.

On the other hand, debt that is saddled with high interest rates (like credit cards) can turn a few purchases into a few years of payments. That’s why it’s important to understand both how credit card interest works and different strategies to handle credit card debt when it happens (because it will, and that’s OK).

How credit card interest works

The simplest terms: When you pay with your credit card, you are borrowing money from a bank or company to make that purchase. In exchange, the bank or company charges you more money the longer you wait before paying it back (this is called “interest”). Most cards offer a grace period before they start charging interest.

Tip: Check your card’s fine print to learn how long your grace period lasts.

Interest is referred to as APR or annual percentage rate. This is how much extra you will pay per year to pay back your purchases. To illustrate, pretend you bought a $200 holiday gift for a family member on a card with a 25% APR but still hadn’t paid it off the following December. Thanks to interest, you actually paid $250 for that gift (and counting, if you don’t pay it off soon).

Strategies to eliminate credit card debt

Acknowledge the debt

First, and most importantly, acknowledge that debt has happened. Identify how much you spent and what caused you to spend. Was it over a few days? Weeks? Months? Are you feeling overwhelmed or stressed? It’s OK. Knowing these answers will help you clearly see the situation and identify the best path forward.

Look at your full financial picture

Knowledge is power, so the next step is to look at all the other areas of your finances. Besides your credit cards, what are your other financial priorities? Do you have other debt? Savings? Is there equity in your home? Any benefits that you haven’t claimed? Check your accounts for features or offers that could help increase your income or lower your debt (think: reimbursements, extended product warranties, credits, lower interest rates).

Once you truly know how much credit card debt you need to pay, consider one or a combination of the following:

1. Transfer the balance to a new credit card

Many credit card companies offer 0% APR on balance transfers for a limited time to lure new customers. If opening another credit card is an option, you can transfer your balance and take advantage of interest-free payments to greatly reduce your balance. But read the fine print: Be sure you know how long that period lasts, what happens after it ends and how much you’ll have to pay per month to pay your balance transfer before that happens.

2. Consolidate multiple debts

If you have multiple credit cards or debts with high interest rates, consider transferring your balances to a personal loan with a lower interest rate. This may decrease the interest you accrue daily and your minimum monthly payments. You can then apply that savings back toward your loan or to other important financial priorities. You’ll also streamline multiple bills into one payment, presenting fewer risks of missed due dates that can negatively impact your credit.

3. Negotiate for a lower interest rate

If you don’t have the option to open a new credit line, you still have options. The goal is to decrease the amount of interest you accrue every day.

Did you know it’s possible to negotiate with your credit card company for a lower interest rate? It’s best to have a history of on-time payments and a decent credit score to back up your negotiations. Simply call your credit card company and explain your situation. They may be willing to lower your interest rate to keep you as a customer.

4. Focus on high-interest debt first

One of the most effective strategies for paying off credit card debt is to tackle the highest interest debt first. This method, often called the “avalanche” or “snowball” method, involves making minimum payments on all your debts but putting extra money toward the debt with the highest interest rate. By doing this, you reduce the amount of interest you pay, which can save a significant amount of money long term.

For example, if you have three credit cards with different interest rates, focus on paying off the one with the highest rate first. Once that card is paid off, apply the same dollar amount you used before toward the next highest (and so on). The idea is the dollar amount stays the same, even as the debt gets smaller. This approach can help you pay off your debt faster and reduce the total amount of interest you pay.

5. Or focus on the lowest balance first

If you have trouble staying disciplined when paying down debt, you may appreciate a different approach. The avalanche method does save more money on interest — but only if you stick to it. Another approach is to try tackling the smallest balance first, regardless of interest rate, because it allows you to see the fastest progress in your debt payoff.

Like the avalanche method, you’ll pay the minimum payments on all your cards. Only here, you’ll apply extra money toward the smallest balance. Once that is paid, you move to the next smallest balance (and so on). You’ll pay more interest than you would using the avalanche method, but the feeling of reaching a $0 balance faster may help you to stay the course, eventually finding yourself debt-free.

Credit card debt can be challenging, but there are practical steps you can take to manage it. Explore the strategies that work best for your situation, and remember — progress starts with a plan.