Credit card debt is the worst debt to be in. Getting out of credit card debt is possible, but will require some discipline. With 20%+ interest rates, credit card debt can have a negative impact on your personal finances if not handled appropriately.
Debt of any kind can be dangerous if misused. Credit card debt, however, is particularly sinister because of its extremely high interest rates, which can cripple your ability to build wealth.
The average household in the United States has nearly $7,000 in revolving credit card debt. That might not sound like much, but make no mistake, $7,000 at with a 20% interest rate costs over $1,000 in interest a year!
In this post, you’ll learn 5 credit card debt payoff hacks to help you manage your credit card debt.
5 Credit Card Payoff Tips to Get Out of Debt
The 5 steps to getting out of credit card debt and paying off your credit cards are:
- Track Your Money and Live Within Your Means
- Stop Using Your Credit Cards
- Pick a Payment Strategy
- Pay More Than the Minimum Payment
- Automate Your Personal Finances
After going through these 5 steps in more detail, you’ll also learn some bonus credit card payoff tips (0% APR Balance Transfer Cards, debt consolidation, etc.)
Credit Card Payoff Tip #1: Live Within Your Means
Living within your means is the bedrock of any debt reduction plan, as well as financial freedom in general.
The reason most people end up with excessive credit card debt is because they adapt to a lifestyle of spending more than they earn. If you ever want to kill your credit card debt, the first step must be to address the conditions that created it.
The first step is to examine your finances and ensure you have a complete picture of your situation. Knowing the full details of your income, your expenses, and any debts is critical to make informed financial decisions.
This includes the start and end dates of the billing periods for each account, and when each one is due.
Once you’ve gathered all of your financial information, the second step is to prioritize your spending.
What things are truly important to you?
Once the necessities are taken care of you need to decide where you want your money to go. In this case we want to devote a chunk of our budget to killing our credit card debt as quickly as possible, while still leaving some wiggle room for lifestyle spending.
How to Cut Your Expenses Fast to Get Out of Credit Card Debt
The quickest way to slash your spending and free up room in your budget to supercharge your debt payoff is by cutting your largest expenses.
Typically, the three biggest expenses people have are their housing, food, and transportation.
Have an expensive mortgage? Try moving to a smaller or less fancy home, or house hack and let your roommates subsidize your housing costs.
Eating out several times a week? Try meal prepping on the weekends so you can have meals ready to go instead of spending that extra money.
By reducing your expenses, you can prevent yourself from needing to take on any additional credit card debt.
Credit Card Payoff Tip #2: Stop Using Your Cards
This should go without saying, but I’ll say it anyway: if you’re trying to kill your credit card debt, STOP USING YOUR CARDS!
If you’ve built up significant credit card debt, you likely have a habit of using them mindlessly.
That statement isn’t meant to be an insult, rather to call out an extremely common issue that many credit card users struggle with.
When people stick to a cash-only strategy they’re confronted with the physical reality of having to hand over their hard-earned money to someone else every time they make a purchase.
Credit card users, however, don’t get this same reinforcement, as the act of swiping a card requires much less thought.
Another reason to stop using your cards is because your debt repayment will take significantly longer if you continue adding to your balance.
Imagine trying to push a boulder uphill; the larger the boulder and the steeper the hill, the more difficult the job of pushing it will be and the longer it will take.
Every time you swipe your credit card while trying to pay down your debt, your boulder gets bigger and the hill gets steeper!
Credit Card Payoff Tip #3: Pick a Debt Payoff Strategy
There are two main strategies to become debt free fast. The two methods for becoming debt free are the debt avalanche method, and debt snowball method.
These methods are pretty straightforward. First, compile a list of your debts and their interest rates. After compiling this list, you will then pay a little extra towards a certain debt as determined by whichever method you pick.
By paying a little extra each month, you will be able to take advantage of some huge interest savings (as we will see a little bit later in this post).
Using the Debt Avalanche Method, you pay off your debts by paying extra toward your debt with the highest interest rate first. .
Once you have paid off the highest interest rate debt, you put the entire paid off debt’s payment plus the same extra amount towards the next highest until all debt is paid off.
For example, let’s say you have two debts: one at 20% interest rate, with a minimum payment of $200, and balance of $2,000, and the other debt with a 10% interest rate, a minimum payment of $150, and balance of $1,000. You decide you can put an extra $50 towards your debt a month.
Using the Debt Avalanche Method, you would put $250 towards the first debt and $150 to the second debt.
Over time, the first debt will be paid off faster than it would if you just paid the minimum payment. If the first debt is paid off before the second, then you put all $250 towards the second debt, for a total of $400 a month, until the second debt is paid off.
The Debt Avalanche Method is the mathematically optimal debt pay down strategy.
The Debt Snowball Method
Using the Debt Snowball Method, you pay off your debts by paying extra toward your smallest balance debt first. Once you have paid off the smallest balance debt, you put that payment towards the next smallest until all debt is paid off.
Many people like the Debt Snowball Method because psychologically, you can generally see your debt accounts disappear faster. If you have a $1,000 loan and a $5,000 loan, it feels good to have the $1,000 loan gone.
Going back to our example with two debts: one at 20% interest rate, with a minimum payment of $200, and balance of $2,000, and the other debt with a 10% interest rate, a minimum payment of $150, and balance of $1,000. Again, you will put an extra $50 towards your debt a month.
Using the Debt Snowball Method, you would put $200 towards the first debt and $200 to the second debt, because the second debt is smaller in balance.
The Debt Snowball Method is not mathematically optimal, but is still better than applying no strategy at all.
The Debt Blizzard Method
If you want, you can combine these two debt payoff strategies and use a relatively new method called the Debt Blizzard.
The Debt Blizzard is a newer strategy which is a hybrid of the snowball and avalanche approaches.
When using the Debt Blizzard method you score a “quick win” by paying off the card with the lowest balance first, then prioritizing any other cards based on their interest rate.
This may seem overly complex, but the debt blizzard method strikes a good balance between the pros and cons of the other two methods.
Credit Card Payoff Tip #4: Pay More Than the Minimum
How do you get out of debt fast?
PAY MORE THAN THE MINIMUM PAYMENTS!
I can’t overstate the importance of this step!
Creditors make money when you carry a balance through the interest you pay.
The minimum payments listed on your credit card statement is usually around 2-3% of your total balance. This minimum payment is typically barely enough to cover the monthly interest on most consumer credit cards. If you only make the minimum payments, it will take you years longer to kill your credit card debt!
Earning more money is another great way to beef up your credit card payments. While there is value in cutting unnecessary spending to free up money in your budget, you can only cut so far before it becomes unsustainable.
Your income has no limits!
There are also virtually unlimited ways you can earn more money. You could ask for a raise at your job, pick up a side hustle, or house hack.
Credit Card Payoff Tip #5: Automate Your Finances
Humans are imperfect; sometimes you’ll forget to pay their credit card bills, or pay late, which causes a host of problems on your credit report.
Automate your bills so you never suffer a late or missed payment. These result in late payment fees that go up the more delinquent the payment becomes, and often result in absolutely crushing penalty APR increases.
For example, most consumer credit cards come with an average APR of 14-16%; miss as little as one payment and banks like Citi and Chase will slap you with a penalty APR of 29.99% that will haunt your account for months
Credit cards generally have the ability to set up automatic payments directly from your bank account, and many banks who provide online banking services also include some integrated bill payment solution.
Since we already know how much each of our credit card bills are, and when they’re due from step one, setting up recurring payments is as easy as visiting a few websites and linking our banking information.
Once your credit card bills are automated, another helpful step is to automate all of your other bills as well such as your utilities, phone bill, insurance, etc.
By automating your personal finances, you don’t have to worry about when things are due and you know they’re set up to fit within your budget. This frees up mental energy to devote toward other things like staying focused on your debt repayment, or increasing income to further beef up your payments.
Bonus Tips for Paying Off Your Credit Cards
While you will be able to pay off your credit cards using the 5 steps above just fine, there are a few other strategies you can use to destroy your credit card debt.
These bonus credit card payoff tips are not for everyone, and please make sure you do your due diligence before diving in.
Balance Transfer to 0% APR Credit Cards
Many credit card companies offer cards with introductory offers of 0% APR for a certain period of time, often as a promotional tool to entice you to sign up.
Once the promo period ends, the APR will increase to predetermined rate according to the terms of the credit agreement. The limited time offer means that unless you can completely eliminate your balance within the promo period you’ll get smacked with interest charges.
I’d recommend this strategy only if you know you can fully pay off your balance in time.
At 0% interest, the credit card companies are practically giving you money for free, but make no mistake, you’ll have to stay disciplined to make sure you pay these cards down.
Also, there may be a balance transfer fee, but at least you won’t be stuck paying 20%+ if you decide to go this route.
Debt Consolidation to Decrease Your Interest Rate
Another way to reduce your credit card bill payments is to consolidate your debt.
Debt consolidation works by a provider issuing a loan that covers the full balance of your various credit cards rather than you paying your cards individually.
Debt consolidation can be advantageous for a couple of reasons:
- First, it simplifies the process of killing your credit card debt by rolling all of your debts into a single payment.
- Second, it can save you money because debt consolidation loans generally have much lower interest rates than credit cards.
A problem with this strategy is it can significantly increase the amount of time it takes to completely payoff your credit card debt.
While you’re saving on interest and typically paying less per month, the amount you owe is unchanged; smaller payments make a much smaller impact on your total balance.
I’d recommend this strategy only if you’re carrying a large number of different credit cards, have cards with extremely high interest rates, and/or can accept the extended repayment timeline.
Get Out of Debt with These Credit Card Payoff Hacks
Credit card debt is a huge problem for millions of people.
Just like other forms of debt it drags down your financial progress and creates significant stress unless managed properly.
With the tips listed above, hopefully you can get out of debt and get on to living your dream life!
Have you tried any other strategies to destroy your credit card debt? How well did they or didn’t they work?