How to Pay off Credit Card Debt When You’re Feeling Overwhelmed

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We know how easy it is to rack up credit card debt. Over 41% of American households carry a credit card balance, and the average balance for those households is $9,333, according to a study from financial data website ValuePenguin.

But here’s the thing about credit cards: They only benefit you when you’re building credit and receiving perks — but not paying interest. If you’re carrying a balance beyond an interest-free period, your cards only benefit the card issuers.

With average interest rates on new credit cards north of 17%, paying off credit card debt is a smart move.

If you’re ready to get rid of credit card debt, be prepared for inconvenient choices and a lot of saying no. But you can do it. And every difficult step will be worth it.

How to Pay Off Debt From Multiple Credit Cards

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Before you start, you should stop using your credit cards altogether until you can use them without putting yourself in financial risk. Though the specifics will vary based on your situation, we only recommend using credit cards if:

  • You don’t have any consumer debt.
  • You have an emergency fund with three to six months’ worth of expenses saved.
  • You can pay off your balance in full every month.

However you do it, make paying off your credit cards — and learning to use them responsibly — a high priority.

Credit card usage has a huge impact on your credit score. If you spend too much of your overall limit or miss payments, you’ll hurt your score. If you keep your balances low and make on-time payments, your score will probably increase over time.

1. Debt Snowball vs. Debt Avalanche: Determine Your Plan of Attack

First, determine how much credit card debt you have. You can do this using a tool like Credit Sesame.

Instead of looking at your debt in its entirety, we recommend approaching it bit by bit. By breaking your debt down into manageable chunks, you’ll experience quicker wins and stay motivated.

Two popular ways to break down debt repayments are the debt avalanche and debt snowball methods.

Using the debt avalanche method, you’ll order your credit card debts from the highest interest rate to the lowest. You’ll make minimum payments on all your cards, and any extra income you have will go toward the highest-interest card.

Eventually, that card will be paid off. Then, you’ll attack the debt with the next-highest interest rate, and so on, until all your cards are paid off.

With the debt snowball method, you’ll order your debts from the lowest balance to highest, regardless of the interest rates on the cards. You’ll make minimum payments on all your cards, and any extra income will go to the credit card with the smallest balance.

Starting with the smallest balance allows you to experience wins faster than you would with the avalanche, but you will spend more money on interest. While both have trade-offs, you can’t go wrong with either method.

Here’s an example of how each method would work if you’re paying off four credit cards of varying balances and interest rates.

  1. $654 with 0% interest
  2. $5,054 with 15% interest
  3. $2,541 with 23% interest
  4. $945 with 17% interest

If you followed the avalanche method, you would pay off card 3 first, followed by 4, 2 and 1. If you followed the snowball method, you would pay off card 1 first, followed by 4, 3 and 2.

Let’s say you have $600 per month to put toward debt. Using the snowball and avalanche comparison calculator from Dough Roller, you can see that it would take you 18 months to pay all of your cards off using either method.

The debt avalanche method would save you $105.73 of interest in the end, but you’d pay off your first card six months faster by going with the snowball.

Choosing the right method comes down to deciding whether you’d rather get quick results or save money on interest. We encourage you to check out Dough Roller’s calculator yourself, so you can calculate what each method would cost you.

2. Don’t Let Credit Card Companies Trick You Into Overspending

Credit card companies make it so easy to get in the habit of overspending. The introductory APR offers, new credit card sign-up bonuses and cash back offers are designed to get us using cards more frequently and thinking less about what items cost.

So if you want to be credit card debt-free, you need to change your lifestyle to lower your spending and maybe even increase your income.

Stop Blowing Your Money on These 3 Things

The quickest way to save a lot of money isn’t to nickel-and-dime your spending. It’s to save as much as possible on big-ticket items.

The three largest expenses in the average American family’s budget are housing, transportation and food, according to the Bureau of Labor Statistics.

To save on housing, you can rent a cheaper apartment or house if it’s not too far away from work. You can rent out a room in your house to a roommate or on Airbnb. You could even try an alternative living situation like an RV.

The easiest way to save on transportation is to get rid of your car payment. Trade in your vehicle for a used car you can pay cash for. If that’s not a possibility, consider trading it in for a car with a smaller payment. It may also be in your best interest to move closer to work if rent in that area is comparable or cheaper.

Finally, to lower your food spending, you’ll have to cut back on eating out and making random purchases at grocery and convenience stores. Plan out your meals each week based on what’s on sale, and try to use what’s in your pantry and fridge before you buy new groceries.

Side-Hustle Your Way to Paying Off Debt Faster

A side hustle is a great way to make money fast to put toward debt. You can use an app like Uber or TaskRabbit to get small jobs or see the unique services you can offer with your talents.

Taking surveys or doing mystery shopping won’t bring in cash fast enough to make a dent in your credit cards, so look for opportunities that don’t require spending upfront and pay more than minimum wage.

This credit card debt calculator is a great tool for estimating how much extra income you need to pay off your debt and how much you can save by paying it off faster.

3. Try These 4 Strategies to Lower Your Interest Rates

Aileen Perilla/The Penny Hoarder

Many people will start by trying to lower their interest rates, but that typically doesn’t help. It can often just trick you into thinking you’ve solved your problem. This step is better left until you have a plan and are already working it.

Once you’ve started paying off your debt, you may find that you don’t need to go through the hassle of getting a lower rate. But if your debt payoff is going to take a significant amount of time, here are some of the ways you can get lower rates and save a little money.

Balance-Transfer Credit Card

If you have good to excellent credit (typically a FICO score of 690 or above) and can feasibly pay off your debt within a year, a balance-transfer credit card is a great option. Balance-transfer cards can save you money on interest charges by letting you transfer the balance of a card with a high interest rate to a card with zero percent interest.

Most of these cards offer zero percent interest for 12 to 18 months with no annual fee. They generally have a 2-5% balance-transfer fee, but you can easily find balance-transfer cards with no fee. A higher credit score will help you qualify for a card with better terms.

Personal Loan

You can also consolidate your debt with a personal loan. Online banks will allow you to prequalify for a personal loan without doing a hard inquiry of your credit, so if you want to shop around, head there first. Then, try your local credit union; they’re known for having the most affordable rates on loans.

It’s also important to note that lenders may tack on origination fees and prepayment penalties, or even require collateral. Read the fine print before you commit to anything.

Debt Consolidation Loan

If you don’t qualify for a personal loan, you can try for a debt consolidation loan. You’ll take out a new loan to pay off multiple debts, and then pay back the new loan — essentially consolidating your debt into one loan.

Debt consolidation is the go-to method for people who’ve fallen on temporary hard times or who have done the work to improve their finances and want to take care of their debt quickly.

It’s important to know that your debt consolidation loan may not cover the entirety of your debt. In those cases, you’ll want to prioritize paying off the remaining debts based on the terms of your new loan.

Home Equity Loan

If you own a home with equity, you have the option of taking out a home equity loan or home equity line of credit, or doing a cash-out refinance.

For homeowners, these options will most likely offer the lowest interest rates, but they’re also the riskiest, because your home is the collateral.

4. Get Help if You Need It

The world of debt collections and creditors can be confusing, intimidating and sometimes even illegal. There’s a common misconception, for example, that someone can take your house or you can go to jail for not making your payments. But credit card debt is unsecured civil debt, meaning no one can put you in jail or take your house for not paying it.

If you’re being harassed by creditors or have circumstances that make your debt repayment confusing, don’t give up before finding out what options you have for assistance.

You’ll also want to be careful when seeking help. While some companies are legitimately there to assist you, others take your money and do very little to help your situation. Always seek reviews online and referrals from friends and family, and go with your gut when talking to their representatives.

Debt Management Program

With a debt management program, a credit counseling company will handle your consolidation in hopes of getting you better interest rates and lower fees. You’ll be assigned a counselor, who will set up a repayment and education plan for you. This program is specifically for unsecured debt, like credit cards and medical bills.

A debt management program pays your creditor for you to ensure you stay current on your debt payments. Your credit score may even improve during the program. But if you miss a payment, you can be dropped, and you’ll lose all the benefits you gained.

The program typically lasts three to five years, so it won’t help if you want to pay off your debt faster, but it is typically the best option for those who can’t.

Credit Card Debt Settlement

If you’re in more than just a temporary season of financial instability, and you can’t see yourself affording the amount of credit card debt you owe, debt settlement is an option, though we regard it as a last resort.

Debt settlement reduces the amount of debt you owe, but it will significantly lower your credit score and negatively impact your credit report.

The process isn’t as simple as debt consolidation, either. You have to convince every creditor that if they don’t settle with you, they probably won’t get anything at all. So, of course, during that time you won’t be making any payments — while interest and late fees accrue.

You can do this on your own, but most people seek the help of a debt settlement company.

Like a debt management program, a debt settlement firm will negotiate debts on your behalf, and the company will make lump-sum payments to creditors while you make monthly payments to the debt settlement company.

While you’re paying the debt settlement company, you’ll still be delinquent with any creditors the company hasn’t yet negotiated with, meaning you’ll still get calls from those creditors.

And there’s no guarantee the company will be successful. If it isn’t successful in negotiating, you’ll still be responsible for the full debt amount, plus any extra interest that accrued.

If the company is successful, you’ll have to pay the settlement amount in full. Then in April, you’ll owe taxes on the amount forgiven.

The settlement company will also charge you up to 25% in fees on top of the settlement.

Bankruptcy

Bankruptcy is another last resort. The two major types for individuals are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy allows the filer to completely discharge all their debts in four to six months by liquidating their assets. A trustee gathers and sells all of your nonexempt assets to pay off your debt. Those assets can include property that’s not your primary residence, a vehicle with equity, investments or valuable collections.

Those who earn a high income or have significant assets typically choose Chapter 13, which allows them to keep certain assets while still repaying some of the debts. It’s a long, arduous process that doesn’t guarantee to resolve your debt. It can be reversed if your income increases, and it wrecks your credit.

Both bankruptcy options have negative long-term ramifications on your credit.

Jen Smith is a staff writer at The Penny Hoarder. She and her husband paid off $78,000 of debt in less than two years on two less-than-average salaries. She gives money-saving and debt-payoff tips on Instagram at @modernfrugality.

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