When using your credit card for the first time, chances are you did not understand you’d spend several months or even years paying the funds back. Maybe you believed that if you made the minimum payment on time each month, the balance would be gone in no time. But it didn’t take long to figure out that only paying the minimum was a trap. And over time, you’ve only been able to chip away at the balance little by little because you don’t have a ton of extra income each month.

Sound familiar? You’re not alone. On average, America households carry $6,354 in bank-issued credit card debt, notes USA Today. And while these individuals may intend to pay off credit card debt sooner than later, it’s hard to pull off when money’s tight and there are more pressing expenses to take care of.

The good news is you don’t have to spend another moment in anguish struggling to find a clear path to tackle credit card debt. Here’s a step-by-step guide to help you get started, even if money trees aren’t growing in your backyard.

Step 1: Establish a Debt-Payoff Fund

The problem most people encounter when paying off credit card debt is that they set a goal and deadline without a clue where the funds will come from. While it’s nice to believe you’ll figure it out along the way, a more logical approach is to determine the exact amount you’ll be able to allocate, on top of what you’re already paying, to credit cards each month.

Assuming you have far fewer bills than money, this shouldn’t be difficult to do. But the reality is few struggling with credit card debt fit into this space, so the more logical approach is to adjust your budget to free up funds or boost your income.

Trim Your Budget

Take a hard look at your budget and ax any unnecessary expenditures. This doesn’t mean you have to eliminate every drop of fun from your life for the next few years. It just means you have to get more intentional about how you manage your money or cut the things that make little sense so you can still have funds at your disposal to spend on the things you love most. Otherwise, you’ll lose motivation, quickly revert to only paying the minimum, and ditch your credit card debt payoff plan altogether.

Earn More

If your budget is as lean as it gets or you’d prefer to live a little and bust your butt to earn more, go for it. Scope out part-time jobs, freelance opportunities, and side gigs. Do whatever it takes to ramp up your income and ax those credit card balances.

Quick note: Ideally, if you trim your budget while earning more, you’ll make the greatest impact in the shortest window of time.

Step 2: List All Your Debts

It’s impossible to tackle credit card debt without knowing where you stand. Yes, the thought of looking your balances in the face may frighten you, but it’s the first step towards getting your head above water. So, whip out a piece of paper and make a note of the following:

  • Creditor’s name
  • Phone number
  • Outstanding balance
  • Minimum monthly payment
  • Due date
  • Status

Step 3: Contact Your Creditors

In the last step, you may have been wondering why you needed to list the creditor’s phone number. Well, it’ll definitely come in handy as the next step is to reach out to soften the blow to your wallet as you embark on a journey to minimize the balances. Other tools you will want to use with your creditors are goodwill letters and pay-for-delete letters.

Lower Rates

The initial call should be to inquire about a more competitive interest rate. Assuming you’ve been a cardholder for some time and have a positive payment history or higher credit rating than when you applied, you may qualify for a much lower rate than you’re paying. Even if it’s only one percent, any amount helps when working to eliminate credit card balances.  

Hardship Programs

Some credit card issuers offer hardship programs that allow cardholders to make steeply reduced payments for a few months and not incur any additional penalties or damage to their credit. And if you’re lucky, they may even be willing to freeze interest.

If approved, use this as an opportunity to save a bundle on interest by paying over and beyond the minimum amount.

Step 4: Get Current on All Past-Due Debts

Ready to dive in headfirst and hammer away at your most nagging debt balances? That’s great news, but are you current on all your credit card accounts? If not, take a step back and get current to avoid additional damage to your credit rating and stop late fees dead in their tracks.

Step 5: Select a Debt-Payoff Method

There are two popular debt-payoff methods to choose from:

Debt Snowball

With the debt snowball, you continue to make the minimum payments on all your credit cards but allocate extra funds to the account with the smallest balance. After paying off the first card, move on to the card with the second lowest balance and rinse and repeat until you’re all done.

While some may argue that it’s more logical to start with the debt that’s costing you the most in interest, the debt snowball is the better approach if you want to see results quickly and build momentum. Otherwise, you’ll want to quit after a few months.

Debt Avalanche

The debt avalanche also mandates you make your minimum payments as usual, but the extra funds go towards the account with the highest interest rate. Once you pay the first card off, follow the same method for the next card in line until you’ve paid the final card off.

This approach is best if you’re able to hang in there for the long haul without giving up, and would rather save on interest than see results in a jiffy.

Step 6: Jot Down Your Plan

Once you’ve decided on a debt-payoff method, the next step is to jot down your financial plan by month so you can visualize what to do to reach the finish line in time. Below is a handy table you can use:

Month Credit Card Due Date Amount
Enter Month 1 Credit Card 1 Due Date 1 Amount 1
Enter Month 2 Credit Card 2 Due Date 2 Amount 2

Step 7: Execute!

While making plans to tackle credit card debt shouldn’t be too difficult, you may find it hard to stick to your plan in the long haul. That’s why it may be in your best interest to get an accountability partner to keep you on track.

Also, when you want to quit, remember why you started. Maybe it was to free up funds for travel, pay for your child’s college education, or to buy a new home. Regardless of your reasoning, keep it at the forefront of your mind and keep pushing until you pay all the cards off.

And reward yourself (in moderation) along the way. This could be after you pay off each card or reach a huge milestone, but be sure to incorporate the expense in your budget.

Stop Using Credit Cards

During the process, you must also stop using credit cards to make serious progress. Otherwise, you’ll take three steps forward and one step back.

Other Credit Card Debt Tips

If you have good credit, you may qualify for a credit card consolidation loan or balance transfer credit card. Assuming you’re disciplined, both can help you pay off your credit card debt even faster.

Credit Card Consolidation Loans

Credit card consolidation loans can save you a wad of cash if you’re approved for a loan with a substantially lower interest rate. Here’s how they work:

  • You apply for a loan.
  • If approved, the bank deposits loan proceeds into your account to pay off the outstanding credit card balances.
  • You continue to make monthly payments for the duration of the loan until you pay it off.

Sounds like a great idea as you could save hundreds or even thousands on interest, but here’s the catch: you must vow to not use the credit cards you paid off using the loan proceeds or you could find yourself in an even deeper debt hole.

A scenario to illustrate a credit card consolidation loan in action:

Credit Card 1: $5,000 balance, 24.99 percent APR, $150 minimum payment

  • Time to payoff: 58 months
  • Amount paid in interest: $3,622
  • Amount paid in interest and principal: $8,622

Credit Card 2: $7,500 balance, 19.99 percent APR, $210 minimum payment.

  • Time to payoff: 55 months
  • Amount paid in interest: $3,987
  • Amount paid in interest and principal: $11,487

Credit Card 3: $10,000 balance, 14.99 percent APR, $250 minimum payment

  • Time to payoff: 56 months
  • Amount paid in interest: $3,945
  • Amount paid in interest and principal: $13,945

Now, assuming you receive a credit card consolidation loan for $22,500 with a four-year term and 9.99 percent interest rate, your monthly payment will be $570.55 (which is cheaper than what you’re paying). Even better, you’ll only pay $4,886.40 in interest over the life of the loan compared to $11,554, and shave several months off the repayment period.

*Quick note: the lender may assess you a loan origination fee, which should be factored into the equation.

Balance Transfer Credit Cards

Balance transfer credit cards allow you to enjoy an extended interest-free period, sometimes spanning up to 24 months, for purchases. But you won’t be using the card for this purpose. Instead, you can transfer the outstanding amount you know you’ll be able to pay within the allocated time frame to take advantage of the interest savings. Also, expect to incur a balance transfer fee of up to 3 percent.

A few scenarios to illustrate balance transfer credit cards in action:

  • Scenario 1: Credit card with $5,000 balance, 24.99 percent APR, $150 minimum payment.
    • Time to payoff: 58 months
    • Interest paid: $3,622

If you transfer this balance to a card with an 18-month interest-free period, you can pay the card in full in this timeframe by increasing your monthly payment to $278 per month. Even better, you’ll avoid $3,622 in interest.

  • Scenario 2: Credit card with $7,500 balance, 19.99 percent APR, $210 minimum payment
    • Time to payoff: 55 months
    • Interest paid: $3,987

If you transfer this balance to a card with a 21-month interest-free period, you can pay the card in full in this timeframe by increasing the monthly payment to $357, and you’ll save $3,987 in interest.

  • Scenario 3: Credit card with $10,000 balance, 14.99 percent APR, $250 minimum payment
    • Total time to payoff: 56 months
    • Interest paid: $3,945

If you transfer this balance to a card with a 24-month interest-free period, you can pay the card in full in this timeframe by increasing the monthly payment to $416. Plus, you’ll save $3,945 in interest.  

Use Financial Windfalls Wisely

Any unexpected influx of cash, including those extra checks you get during the year, birthday gifts, tax refunds, stock investments, bond investments or work bonuses can be used to pay down credit card debt even faster.

The Bottom Line

While credit card debt is easy to get into and may seem practically impossible to get out of, there is a light at the end of the tunnel. By following the directives in this step-by-step guide, you’ll be well on your way to tackling credit card debt in record time.

Author

Kevin is the founder of Voy Media. Kevin is an avid outdoorsman and nature lover; when not in the concrete jungle of New York, he can be found trying to explore a real one. He is currently an editor at Dollar Genie, a finance blog that teaches you how to save money, make money, and live well.

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