How to Pay Off Credit Card Debt

‍Anna Yen, CFA, is a financial wellness expert with 2 decades of experience in financial markets.  This includes on the trading floors of JPMorgan and as a Director at UBS. She specializes in personal finance, derivatives, and alternative investments including crypto.

Over to Anna...

Tackling credit card debt gets easier when you have a plan, especially if you have more than one card. While paying them off when you can sounds like a good idea, you’d be surprised how much you can save by planning ahead. 

Here’s how to pay off credit card debt faster than you thought possible – even if you’ve been carrying a balance for years. 

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What is a good debt ratio?

Just as companies measure their debt ratios to get a sense of their financial health, households (and lenders) can review their debt-to-income (DTI) ratio, which is total debt divided by total income. It measures how much of your monthly gross (before-tax) income goes to debts like your:

• Credit cards
• Auto loans
• Student loans
• Mortgage or rent

(For instance, a 25% DTI means that 25% of your income goes to your debts.)  

Generally, lenders consider a “good” debt-to-income ratio to be no higher than 43% –but the lower, the better. A lower DTI shows that you have more income available to cover your expenses and repay your debts.

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How to pay down credit card debt

Paying down credit card debt requires time, planning, and of course, income. Consider these strategies to kick those debts to the curb even faster. 

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💭Ask yourself which debt to pay off first

If you have multiple debts on your plate, how do you decide which debt to pay off first?

Start by asking one simple question: Avalanche or snowball? 

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🏂 The avalanche method

If you want to shed debt faster, the avalanche method can help. 

Start by listing your debts from your highest interest rate to your lowest (for instance, 23%, 20%, and 17%). Then, make the minimum payment on all but your highest-rate card. Throw every extra dollar you have at that one until it’s paid off, then move on to the next-highest rate debt.  

The avalanche method saves money by reducing the total amount of interest you pay. But if you have larger debts, “avalanching” can take a while and feel like you’re not making much progress. 

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⛄The snowball method

Snowballing your debts involves making the minimum payment on all but one card. This time, you throw your extra cash at the card with the smallest balance. Then when that’s paid off, you move to the card with the next-smallest balance. 

Generally, the snowball method doesn’t save as much money because you accrue more interest long-term. However, it may motivate you to stay on track by getting rid of more debts faster.  

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💳 Consolidate your debt

Another debt payoff method to consider is consolidation. 

Consolidating your debts involves taking out a single loan (like a personal loan or home equity loan) to pay off multiple credit card balances. 

Consolidation makes tracking your debt easier as you’ll have just one fixed monthly payment. And since most loans carry lower interest rates than credit cards, you’ll probably save more money!

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Is consolidating debt a good idea?

Debt consolidation only makes sense if you can lower your overall interest rate or need help managing your payments. Additionally, you’ll need to meet income, credit score, and DTI requirements to qualify for another loan. 

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Consider a balance transfer credit card

You can also consolidate your debt and/or lower your interest payment using a balance transfer card. 

These cards typically offer a 0% interest rate for 12-21 months on transferred balances. While you may pay a 3-5% fee, you can save big compared to higher-rate options. In fact, if you repay your debt before the intro period ends, you might not pay another dime in interest. 

That said, you’ll need good credit or better to qualify. And if you make a late payment, your lender may cancel your low-interest privileges. 

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Talk to your creditors

If you’re struggling with your payments or need help managing your debt, you might reach out to your creditors directly. Some may offer hardship or deferral programs or are willing to negotiate your terms to:

• Lower your interest rate
• Waive certain fees
• Set you up on a dedicated payment plan
• Defer your payments so you can catch up financially

Sometimes, taking a short break or making a few small changes is all you need to get back on track.

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How to negotiate credit card debt

Negotiating your credit card debt may take some effort. The following tips can help increase your odds of success:

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• Research how much you owe, including any fees and overdue payments
• Gather documents explaining any extenuating circumstances like a job loss 
• Calculate how much you can afford to pay now or in the future 
• Contact your credit card provider when you have plenty of time to talk
• Remain calm and explain your case clearly and factually
• Ask if they’re willing to waive fees, defer payments, lower your interest rate, or work out a payment plan, or
• Ask about specific relief or hardship programs you can join
• Don’t be afraid to call back or request a manager if the first rep says no

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Most importantly, be sure to get any agreements in writing in case the information is lost later. And if you need some motivation to call, remember: the worst they can do is say no!

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Consider non-profit credit counseling

If you need more than a simple repayment plan to get back on track, a reputable nonprofit credit counseling agency may be the answer. Agencies like the National Foundation for Credit Counseling can:

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• Review your debt and income
• Examine your credit report
• Give specific guidance on your situation
• Help you build a budget
• Provide educational resources

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They may also enter you into a debt management plan. Under these plans, they negotiate lower interest rates and monthly payments on your behalf. You’ll pay the counseling agency a fixed amount each month, and they’ll pay down your debts. 

Debt management plans aren’t for everybody, as you may pay an added fee and have to close your credit accounts. But if you’re on the cusp of bankruptcy, they might be your saving grace. 

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How to pay down credit card debt faster

The plans and tricks above help you structure your debt repayment. But if you want to pay it off faster, these tips are for you:

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🔥Pay more than the minimum

Making the minimum payment means that you’ll rack up more interest charges and be stuck with debt longer. By paying more than the minimum, you’ll lower your balance and reduce your long-term interest payments. 

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⛹️Throw extra cash at your debts

When you get your tax refund, earn a raise, or work overtime, it’s tempting to buy that new pool table. (Or even a whole new pool!)

While reverting to being a kid is fun, the grown-up thing to do (sigh…) is pay off your debt faster. 

Think about it like this: the quicker your debt disappears, the more money you’ll have in your budget for that pool later.  

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💙Make a budget

Speaking of budgets.

Sometimes, you get into credit card debt when unexpected surprises and emergencies pop up. But overspending is another common way to go into debt. 

To help control your spending, try setting up a reasonable budget to structure your essential vs. your “fun” expenses. 

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With Cleo's free budget feature, Cleo will:

• Give you reminders when you're about to hit your overdraft
• Sort your spending into essential and non-essential
• Make a budget that works for you
• Show you exactly how much you have to spend per day
• Roast you for how much you spent on Uber last month

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❌Stop using your credit card 

If you keep using your card while making payments, you’re only adding to your debt load. After you make a budget and cut your spending, put your cards in a safe place and resist the urge to use them if you don’t have to. Whenever possible, pay with cash or your debit card instead.  

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🌱 Grow your emergency fund

Saving up for emergencies makes it less likely that you’ll take on debt when sudden expenses arise. 

Building savings while you’re paying off debt – even just $25 a week – can limit the need for credit cards when the inevitable occurs. 

Or you might save for a couple months before aggressively tackling your debt to avoid resetting your progress later. A good rule of thumb is to have at least $500 to $1,000 to cushion any emergencies down the line. 

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⬆️ Increase your income

This sounds obvious, but sometimes it needs to be said: If you’re living paycheck-to-paycheck or beyond your means, consider increasing your income. You might:

• Take on more hours
• Ask for a raise
• Get a second job
• Freelance on the side
• Turn your secret skill into a side hustle

You can also raise one-time funds through a garage sale or selling stuff online. 

When it comes to building savings and paying off debt, every penny counts!

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Knowing how to pay off credit card debt is just half the battle

The second half of the battle: Finding a plan that works – and sticking to it. 

Planning ahead, budgeting, and even joining credit counseling can all help you beat debt. But if you don’t stick to your plans, it’s all too easy to fall into bad habits again. Then, it’s back to square one.  

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You've got this. And if you want a little help making the money thing less scary, or to find out if you're eligible for a quick spot of up to $250,* Cleo's got you.

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