What’s the Best Way to Pay Off Your Credit Card Debt?

Take these steps to eliminate your credit card debt

More people rely on their credit cards as a source of liquidity in tough economic times and today is no different. Many hold multiple cards and struggle to pay them off and simultaneously put something away for the future.

First off, learning how to pay off a set of credit cards is no strategy at all if it is not just one piece of a wider debt management strategy.

A debt management strategy will include a review of all earnings, assets, debt, spending, and credit availability. When an individual has serious credit card problems, all of these must be examined and acted upon to make effective decisions that help you emerge from debt.

Earnings
You must review your earnings to see if enough money is being saved under 401K or IRA plans. Also, you should examine if there are opportunities for extra hours at work or even a second job (even if temporary) that will help to pay off debt. Every member of the household should do this.

Strangely enough, some situations may require a household member to stop work in order to save. For example, quitting a low paid job, stopping day care and cooking meals by one partner can be a great financial decision, depending on the number of children involved.

Assets
The next item is your assets. Are there some assets that you can sell to raise ready cash? You wouldn’t believe individuals who have three cars or expensive comic collections but are drowning in debt.

Sometimes you may have to let go of things you love to get where you want to be financially. Other times, expensive toys make no sense at all. Do an honest review of your assets and decide which you should let go to save your financials.

Spending
This is where much of the problem lies – your spending. Eating out every night? Have to buy the latest fashions? Want to buy the Mercedes when you can only afford the Kia? Have $50,000 in credit card debt and still pay for housecleaning every week? Planning to ask for credit card limit increases to book those two vacations to the Islands?

Sit down, take a reality pill, work through your spending decisions and begin to make better ones that will help you regain financial health. If necessary, get yourself a financial counselor – non-profit is cheaper – and cut down on the spending side.

Few return to financial health without exercising some discipline and making hard decisions.

Credit Availability
You also should assess how much credit you can tap if your situation is dire. This is important, especially if you can use new cheap credit to pay down expensive credit. Just don’t spend the new credit on that vacation!

Paying Off Your Credit Card Balances
After we have done the housekeeping above, there are a few strategies we can use to pay off our credit card balances in a systematic way.

  1. Organize:  Get them all organized into a spreadsheet, Quicken, or a bound notebook – some format where you can easily view your remaining balances and monitor your progress.
  2. Avoid Late Fees: Don’t get dinged by late fees.  This means that you have to be aware of payment deadlines and at the least pay the minimum for all your accounts. Software reminders can help, especially if you use online bill payment.
  3. Negotiate:  If you have very large and past due balances – even if some are in collection – call and negotiate. Many banks are happy to reduce balances or monthly payments and eliminate late fees in order to turn the spigot of your payments back on.
  4. Prioritize: Your objective should be to pay off the cards with the highest interest rates first.  So minimums on other cards and the highest interest card should be eliminated first, then the next highest.
  5. Cut and Cancel: Once a card’s debt is eliminated, if you have more than 2 or 3 cards, cut it up and cancel it.  That means fewer temptations for you. Keep only cards with no fees plus other benefits like miles or points.  Never hold a card with yearly fees if you can get one without.
  6. Motivate with Small Successes:  If you have a card with a small balance, regardless of the prioritize rule, pay it off first and cut it up.  This will give you a sense of accomplishment and encourage you to continue working to eliminate the rest.
  7. Be Patient: It took you a while to rack up the credit card debt.  It will take a while to pay it down. Monitor and control your spending closely as you pay off your debt and in time, you will eliminate it all.

Good luck!

  • Jason

    Very well said! I have been through hard times paying my credit card balances before. It was not easy at all but as you said you can always call them up and negotiate.

  • Sophia

    My financial adviser taught me how to control and organize my credit card expenses. I am very happy to have come across this site. The articles are all sensible.