How to Pay Off Credit Card Debt

Many Americans struggle with paying off credit card debt. In fact, recent reports show that the average American carries between $2,000 and $5,000 in credit card debt at any given time.

If you’re looking to tackle your credit card debt, you should know that there are several paths available to you. Finding the best strategy for your specific situation, however, means finding a balance between your short- and long-term financial goals.

Regardless of which strategy you choose, the key is to stay consistent so you can chip away at your credit card debt over time.

Choose a Debt Payment Strategy that Works for You

The first step to tackling credit card debt is developing a game plan that works for your specific financial situation. However, a quick search online will turn up hundreds of strategies and tactics for paying down credit card debt. So, which should you choose?

It all comes down to one core idea: balance. After all, the best kind of debt strategy is the one that works for you.

Your debt payment strategy should work with your lifestyle to reduce the effect the debt has on your way of life. For example, your strategy could focus on lowering your monthly payment, leaving you with more money for daily expenses. Or, you could build out a budget to pay more on your debts every month in an attempt to pay everything off as quickly as possible.

No matter your specific goals, there are several strategies which have proven effective for helping individuals pay off their debts:

• Paying more than the minimum — All credit cards come with a minimum monthly payment that you’ll need to pay off at the end of the month. The first and most effective way to pay down any existing credit card debt is to pay more than the minimum monthly payment on any debt that incurs interest. Paying a higher amount monthly means paying down your principal faster. This can result in less interest over the course of the loan and a faster repayment timeline overall.
• Snowball method — This strategy focuses on paying down small debts first and then building momentum to tackle larger debts. Over time, the snowball method lowers your minimum monthly payments by focusing your resources upfront on the smallest debts that are easiest to pay off. Then, once you finish paying off these debts, you can use your newly freed-up income to pay down the larger debts faster.
• High-interest paydown (“avalanche method”) — All debts have different interest rates. With this strategy, you focus on paying down the debts with the highest interest rates first. This will save you the greatest amount of money in the long run by lowering how much you’ll pay over the life of the loans. However, it can be hard to build and keep momentum if your debts with the highest interest rates are also the ones with the most money due.
• Consolidating with a personal loan — If you’re struggling with paying off several cards with high interest rates, or if you just want to shop for a lower rate, you may want to consider debt consolidation. Consolidating your debts means bundling them under one account. While you’ll still owe the same amount, this strategy can make the day-to-day management of your finances easier by focusing all your efforts on a single, more manageable loan that often has a lower interest rate and longer repayment schedule.

No matter which strategy you choose, the important thing is to stick with it for the long haul. Paying down your credit card debt is a marathon, not a sprint, so it’s important to choose a strategy that will work for your financial situation for as long as it takes to eliminate your debt.

Finding the right balance between your short-term goals and your long-term financial health is something you don’t have to tackle on your own. With the help of your local banker, you can create a plan that works for you now and into the future.

Consider Debt Consolidation

If you have strong credit but are struggling to make the monthly payments on your credit cards, it may be worth your time to review the various personal loans and lines of credit available from your local bank.

As covered above, one common approach is to use a personal loan or line of credit to pay off any outstanding debt, leaving you with a single balance that will have a lower interest rate than what you would pay on the credit cards.

An important aspect of this strategy is that you have the option to get rid of the credit cards entirely, making it easier for you to resist spending more money on the cards and potentially gaining new debt in a time when your focus should be on lowering your outstanding balance.

Benefits of Paying Off Debt with a HELOC

A specific strategy often pursued by homeowners is to take out a home equity line of credit (HELOC) to pay down the debt.

This method centers on paying off the credit card debt with the HELOC amount, leaving you with the same amount outstanding but a lower monthly payment and interest rate.

A HELOC lets you borrow against the equity you have in your home. This means individuals who may not qualify outright for a personal loan can tap into their home’s equity to pay off high-interest debt, such as a credit card balance.

Let’s say your house is valued at $400,000 and you have a mortgage of $150,000. This would mean you have $250,000 worth of equity in your home. With a home equity line of credit, you could borrow against this equity (generally up to 85% of the total amount) to pay off your credit card debt, leaving you with a more manageable loan at a lower interest rate.

Further, the increased borrowing capacity means you can consolidate other debt into your HELOC. For instance, you could consolidate any high-interest rate loans, medical bills or other balances that have a higher interest rate (or larger monthly payments) than you could expect from your HELOC.

Consider Other Debt Relief Options

If the amount you owe is more than the amount you can pay each month, it can put a huge burden on your finances and your way of life. In such a situation, it may be wise to consider a few debt relief options.

For example, if your interest rates are too high, it may be worth exploring debt consolidation or taking out a personal loan or HELOC to refinance the debt and lower your monthly payments. With more specific types of debt—such as medical debt or student loan debt—you could research loan forgiveness or other programs that can help you write off portions (or even the entirety) of the amount.

See if You Qualify for a Balance Transfer Card

Balance transfers offer the opportunity for a 0% APR sign-on bonus—typically for between six months and two years—allowing you to pay down a significant amount of the principal during this period.

Since all your payments will go directly against the amount you owe, you’ll make faster progress than if you had to also pay down the interest.

Note, however, that most balance transfer cards require a relatively high credit score, and many will charge a balance transfer fee equal to around 3–5% of the amount being transferred.

Take Advantage of the Resources at Your Local Branch

Credit card debt is a common problem that many people face every day—and there are options available for helping you quickly pay down your credit card debt.

From basic strategies such as paying more than your monthly minimums to more targeted strategies such as the snowball method or a high-interest paydown approach, common approaches often center on trying to pay down the principal as quickly as possible to minimize interest payments over time.

If you’re having trouble making your minimum payments or these methods don’t work for you, know that there are still options for your situation. For example, it may be wise to look at alternative approaches such as debt consolidation or performing a balance transfer to a 0% APR card.

When reviewing these strategies, it’s helpful to have hard numbers to figure out which works best for your situation. Oftentimes, using a debt consolidation calculator, a HELOC calculator or an interest rate calculator can help you quickly and easily determine how different strategies could affect the amount you pay and how long it may take to pay off your credit cards.

Need help getting started with a strategy to pay down your credit card debt? Schedule an appointment to meet with a dedicated expert at an Associated Bank near you. We’re here to help you meet all your financial goals, eliminate debt and secure a bright financial future.