Eliminating Credit Card Debt

Debt Payment Basics

Before we get to the debt payment tips, here are some quick steps to take so you're prepared to knock out your debt. 

1. Create a credit card inventory:

List all your credit cards, the type of account (charge card, store card, etc.), balances, due dates, interest rates, current minimum payment, actual payments, frequency of use, and any other important notes you think might be needed (such as promotional expiration dates, etc.).

2. Review your budget

Determine how much money you can set aside for paying down the credit card debt. Remember that your debt action plan has to be manageable and not cause future financial stress.

Also, keep in mind that it’s way more important to pay financial obligations like rent/mortgage, utilities, transportation, food, and child care expenses, as well as any government debts. Make sure these expenses are covered before allotting any extra funds to pay down credit card debt.

Debt Payment Tips

We’ve heard from many in the My Money Story community that paying off credit card debt is hard and expensive. Below are some tips to keep in mind. 

1. Create a credit card inventory:

List all your credit cards, the type of account (charge card, store card, etc.), balances, due dates, interest rates, current minimum payment, actual payments, frequency of use, and any other important notes you think might be needed (such as promotional expiration dates, etc.).

2. If you have 1-2 cards that you aim pay off each month

If your budget allows, pay off the balances in full every cycle, thereby taking advantage of any credit card rewards programs, while carrying no debt, and saving on interest.

3. If you have 1-2 cards with outstanding balances that you’re working on reducing

Try paying on a biweekly basis. By making bi-weekly payments, you can pay down the debt significantly quicker and save on interest as well. Ex: Instead of paying $200 once a month, make two $100 payments.

If your budget allows, pay more than the minimum balance on both cards

4. If you have more than 3 cards with outstanding balances that will take a while to pay down

• Do not pay more than the minimum payments on each and every card. To maximize the impact of your extra payment amounts, we suggest you review your credit card inventory and choose one card to completely pay off first.

• All the other cards should receive their minimum payments due to avoid late fees, but any extra funds you have towards debt repayment should go to the card you identified as a priority. 

Decide between the Avalanche or Snowball Debt Repayment methods

• Avalanche method: You focus on paying the card with the highest balance or highest interest rate first. Once that is paid off, you use the money that was used towards this card on the next card, and so on. This method tends to save you interest overall but may take longer to see results.

• Snowball Method: You focus on paying the card with the small balance off first. Once that is paid off, you use the money that was used towards this card to the next card, until all cards are paid off. This method is great if you need motivation to see progress happening quickly. 

For more info see: Debt Avalanche vs. Debt Snowball: What's the Difference? (investopedia.com)

In certain cases, a debt consolidation or balance transfer may be a good option as it can help lower interest rates. However, keep in mind any/all applicable fees.