How to Pay Off Credit Card Debt

If you’re trying to get out of credit card debt, you’re not alone. Many Americans can relate. Debt can happen for a variety of reasons, and it’s nothing to be ashamed of. What’s most important is making sure you have a plan to pay it off.

There isn’t one best way to get rid of credit card debt. Debt looks different for everyone, so you’ll need to find strategies that work for you. The following tips can help.

Always pay at least the minimum balance

According to Experian (one of the nation’s three largest credit bureaus), the single most important factor in credit scoring is payment history. In other words: Do you make your payments on time? Even one missed payment can cause a significant drop in your credit score, which means that on top of your credit card debt, it could be harder and more expensive for you to get a loan to purchase a car or a home in the future. That’s why it’s important to pay at least the minimum balance on your cards each month.

Use bill pay or set up automatic payments

To pay your bills more efficiently, you can set up one-time or recurring payments through INTRUST online and mobile banking with our service called bill pay. We recommend using bill pay because it:

  • Allows you to pay all your bills in one place, including your credit card bills, so you don’t have to log in to multiple sites.
  • Provides a record of all the bills you’ve paid, so you can see the companies you pay and the total amount you pay each month for all your bills combined.

Alternatively, most companies make it easy for you to set up payments directly through their websites. These are called automatic payments or autopay. Even though this method is automated, it’s harder to keep track of everything you’re paying from your checking account, which can make it difficult to plan for expenses and identify extra money you may have each month to put towards debt. That’s why bill pay is our favorite method for making and tracking monthly payments.

Track your income and expenses

The next step is to identify the amount of money you make every month and where it goes. Consider writing down your income (the amount of money you make after taxes) and putting together a list of what you typically spend in a month. You can use three categories: loans and credit cards, living expenses, and other monthly expenses. Accessing your INTRUST Bank account statement or transaction history through online and mobile banking can help you create your list. If you use bill pay (see the section above), that can help too.

  • Loans and credit cards
    Begin by writing down all your loans and credit card balances. Next, organize them from the smallest to the largest amount. Be sure to write down the monthly minimum payment amount next to each one, so that you know what you need to pay to not fall behind.
  • Living expenses
    Create a separate section for required monthly expenses such as groceries, gas for your vehicle, car insurance, rent, utilities (water, electric, trash, etc.), phone bill, childcare, and any other monthly expenses that are a necessity for your home.
  • Other monthly expenses
    Next, create a section for monthly expenses that are not necessities. This category should include any monthly subscriptions such as cable or movie streaming services, memberships (gyms, recreational clubs, organizations, etc.), and what you spend on local attractions (restaurants, shopping, etc.).

It can be helpful to include the due dates for your bills. This allows you to see when everything is due and when you’re most likely to be short on cash in between paydays. This might also help you pinpoint the best time to make an extra credit card payment, if you can.

Calculate leftover income

Once you’ve made your list, subtract the amount you spend from your monthly income. For example, if your income is $2,600 and your payments total $2,100, your extra cash for the month is $500. You likely won’t want to put all that extra money towards credit card debt, because you’ll want a cushion for any unplanned expenses that might come up (such as car repairs). But if you’re trying to pay off credit card debt fast, it’s good to regularly ask yourself these questions:

  • Can I afford to pay more on my credit cards this month?
  • How much money am I comfortable putting toward my credit card debt?

The more you can pay each month, the faster you’ll pay down credit card debt.

Find extra money

The list you make of what you’re paying each month might remind you of subscriptions you’ve forgotten about. Cancelling subscriptions can give you a few extra bucks for your credit card payments. Even if it’s only $10 more toward your card payment, that adds up. Some people also find that selling items they no longer use is an effective way to earn extra money. It’s easier than ever these days with online sites and marketplace features on social media.

Pick a credit card payment strategy that works for you

If you have more than one balance and you’re considering which credit card debt to pay off first, there are several popular strategies.

  • Debt snowball
  • Debt avalanche
  • Credit card consolidation loan
  • Balance transfer

Each strategy has its pros and cons, and you’ll want to be particularly careful with the personal loan and balance transfer options. We’ve outlined each strategy below.

Debt snowball: Focus on the lowest balance first

This method is called the snowball method because it can help you see progress quicker, which may help you build momentum. Start by listing your card balances from lowest to highest. For example: $1,600, $3,000, and $4,500. Try to make more than the minimum payment on the lowest balance ($1,600) while continuing to make only the minimum payments on the other two balances. Working on your balances one at a time may feel less overwhelming.

The downside of this strategy is that it doesn’t consider your interest rate: the amount it’s costing you to borrow the money. It’s important to note that interest adds up daily on your unpaid balances and can grow quickly. If the $4,500 balance is also your highest interest rate, you may want to read about the debt avalanche method, which we cover below.

Debt avalanche: Focus on the highest interest first

With the debt avalanche method, you make more than the minimum payment on the balance with the highest interest while continuing to make the minimum payments on your other balances. Start by locating the annual percentage rate (APR) for purchases on your cards and listing them from highest to lowest. You can find your APR:

  • On your most recent credit card statement.
  • By reading your card’s terms and conditions.
  • Through your account on your card company’s website.
  • By contacting your card company directly.

Once you have the highest APR card paid off, repeat with the next highest, and the next, until you’ve paid off all your balances.

The downside of debt avalanche method is that if you owe a lot of money on a card, say a few thousand dollars, it can take a long time to pay off — a couple of years even. Saving yourself money on interest can be a good thing, but the money you save may come at the cost of feeling like you’re going nowhere fast. Whereas with the debt snowball method, you may get some quick wins that’ll keep you motivated and feeling good.

Credit card consolidation loan

With this strategy, you apply for a personal loan. You use the funds from the personal loan to pay off your credit card debts. You then make a single payment each month to pay off the personal loan. The benefits of this strategy are:

  • You only make one payment.
  • Personal loans often have lower APRs than credit cards if you have good credit.
  • It’s a consistent payment amount each month, meaning the amount you pay is not variable (or does not change) based on your credit card balances.

However, if your credit score has recently dropped, you may not meet the lender’s requirements for a loan, or you may qualify for an amount that won’t cover all your credit card debt (meaning you could still have multiple payments). Additionally, some lenders charge extra fees. You’ll want to make sure you know what those fees are and what they mean for your loan.

You’ll also want to avoid using your credit cards while paying off your personal loan. Charging purchases to your credit cards during this time will only increase your debt. It’ll take you longer to pay off what you owe and will increase your monthly expenses.

Balance transfer

You may be able to transfer the balance of one or more credit cards to a new credit card. This is called a balance transfer credit card. The benefit of this strategy is that a balance transfer credit card could have a low introductory APR period, which means you’ll be charged less (or no) interest on the balance you’ve transferred for a certain period, often 12 to 18 months. However, there are a few things to note:

  • A balance transfer usually requires a Fair or Good credit score.
  • You’ll want to pay off the balance before the introductory APR period ends.
  • You might be required to pay a balance transfer fee, which is a small percentage of the balance you’re transferring.

If the card requires a balance transfer fee, you’ll want to consider whether the card will actually save you money. In other words, think about the interest you’re currently paying on your cards. Is that interest higher than the balance transfer fee? A lot higher? If so, the balance transfer card could be a good strategy. If not, you might want to consider another strategy.

All these strategies require some calculations and research. Don't rush into a decision with your credit card debt. Be sure to ask questions of creditors to make sure you understand all the terms with your options.

What not to do with credit cards

Paying down credit card debt can be challenging, and it can take much longer than you want it to. But planning and sticking to it each month will help you work toward a life where you control your credit cards and not the other way around. Equally important is knowing what to avoid.

Don’t spend all your tax refund on debt

Unless you already have an emergency savings account with enough money to cover unexpected costs, such as car repairs and medical bills, you’ll likely want to avoid spending your entire tax refund on credit card debt. Putting that money into savings now may help you later when you need it most.

Don’t have more than a few credit cards

According to a report by Experian, the average American has three credit cards. The more you have, the harder it becomes to track when your bills are due and manage your spending across each card.

Don’t carry a credit card balance

If you’re in credit card debt, of course you’re carrying a balance on your cards. That’s OK for a short time, as long as you’re making at least the minimum payment on your cards every month. As you’re working towards being debt-free (yes, you’ll get there), know that it’s best not to keep a balance on your cards. Despite popular belief, carrying a balance could hurt your credit score and cost you more money.




Credit and Lending

Recommended Articles