How to Pay Off Credit Card Debt

Illustration to accompany article on credit card debt Grant Crowder and Getty Images

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Even before the COVID-19 pandemic took hold of the U.S economy, many Americans were overstretched with credit card debt. Delinquent credit card debt (payment late by more than 90 days) rose 5.32% in late 2019. And the average credit card debt per household was $8,398 heading into the spring. 

If your income has gone down and you can’t make credit card payments, the debt can add up quickly. By recommendation of the Federal Deposit Insurance Commission (FDIC), most credit card companies are working with customers to provide relief options such as temporarily deferring payments, lowering payments, waiving late fees, interest-rate reduction, and payment plans. 

But companies have also responded to the pandemic by pulling back on some balance transfer deals, tightening lending standards, and decreasing spending limits.

When you’re dealing with debt on multiple credit cards, you need to make a plan for tackling it in the most efficient way possible. Here are a few methods you can use to start paying down your high-interest debt:

  1. Debt avalanche
  2. Debt snowball
  3. Debt landslide
  4. Credit counseling services
  5. Balance transfer credit cards
  6. Build an emergency fund

Best Strategies for Paying Off Credit Card Debt

There are three main methods of debt payoff you can consider: debt avalanche, debt snowball, and debt landslide. 

Experts like Todd Christensen, author of “Everyday Money for Everyday People” and accredited financial counselor, recommend making the bare minimum payment on every account — except one.

Pro Tip

Using the debt avalanche method will save you the most money, because it gets rid of higher-interest debt first.

Debt avalanche

In the avalanche strategy, you’ll put all your focus on the account with the highest APR, or interest rate. Once that card is paid off, move onto the next highest-interest account. This method will save you the most money in interest charges over time.  

Debt snowball

In this method, you’ll choose the account with the lowest balance and make higher payments only on that one (while paying the minimum on your other accounts), Christensen says. Once paid in full, the money you were putting toward that account can be used toward the next lowest balance. For each account you close, you can get a motivational boost to keep going toward your bigger targets. 

Debt landslide

Figure out which account you most recently opened and focus on paying that one down first. This system will focus on paying off debt while also rebuilding your credit rating, since most credit scoring models give weight to payment activity on newer accounts. 

Other Ways to Pay Off Credit Card Debt

Credit counseling services

Certified counseling services are available through the National Foundation for Credit Counseling (NFCC). Counselors will help you teach you how to reach a debt-free lifestyle by offering strategies for current credit card balances and avoiding future debt pitfalls. 

Balance transfer credit cards

Taking the balance owed from one credit card and moving to another is one way to assist in paying down your credit card debt. Many balance transfer cards offer zero-interest on balance transfers for a set period of time. After the promotional period, you will incur interest on your balance — unless you’re debt free by then. Be aware, though: Many balance transfer deals are “drying up,” according to Ted Rossman, industry analyst at Due to COVID-19 and the economic recession, “card issuers are nervous” and discontinuing certain cards such as balance transfer cards. They are concerned “people won’t be able to pay them back, so they are not looking to take on new customers,” Rossman says. 

Emergency fund

Through periods of financial hardship, racking up credit card balances might be your last resort when expenses are due. While you pay down your current debt, start building an emergency savings safety net, so you’re not caught in a debt cycle after your balances are paid.

Experts typically recommend saving at least 6 months’ worth of expenses for an emergency fund. Even a few dollars each month will grow over time, and help protect your financial health from future income losses and unexpected expenses. Begin with a $1,000 goal, and simplify the saving process with automatic transfers. Then, when you’re debt free, start directing the money you save on monthly payments toward building your emergency fund to an amount that feels secure.

Pitfalls to Watch Out For 

Credit repair services 

Not to be confused with credit counseling mentioned above, credit repair services offer to repair your credit in exchange for a fee. They will review your credit report and dispute errors and negative marks. However, you can access your credit report for free. You can also make disputes yourself for free using this dispute letter template.

Avoid missing payments

Late payments on your credit accounts can cost you more than you know. Payment history makes up 35% of your credit score, by far the most significant influence on your credit health. Always make at least the minimum payments or take advantage of deferment options to protect your credit score. 

Low credit scores will affect many aspects of your life from insurance rates to the apartment of your dreams to the interest rate you’ll get down the road on your home or auto purchase.