You have credit card debt. It’s a financial fact that can feel like a failure. Being in debt often triggers feelings of anger, guilt, blame, and shame. You may feel hopeless if your debt seems overwhelming like you’ll never be able to get a handle on it.
Those negative emotions make it harder to face your debt and may keep you from taking steps to get rid of it. As hard as it is, try to put emotions and self-blame to the side. What really matters here is what you do next.
Every step you take—no matter how small—to address your debt moves you closer to conquering it. Every extra dollar you pay lowers your debt and the future interest on it. And if you’re reading this, you’ve already taken the first step toward fixing the problem.
Here are 5 steps you can take to lower your credit card debt:
1. Understand the Causes of Your Credit Card Debt
To start your credit card debt demolishing campaign, you’ll need a complete listing of what you owe. Sounds simple, but facing this debt can be very hard when it’s all laid out in front of you. (Some people I work with take this step with a drink or cupcake—it helps take the edge off.)
The next step is even harder. After you get a handle on how much you owe, it’s important to figure out how and why you accumulated more credit card debt than your budget could handle.
Facing your credit card debt this way can help prevent the same thing from happening again. The best way to do that is to stop using credit cards; go cold turkey, and cut them up if you have to.
Make your debt list
Before you can make your debt list, you need to gather your most recent credit card statements. If you don’t get paper versions, you’ll find them online on the card issuers’ websites. To list your debts, make a grid with five columns.
It can be on paper, in a spreadsheet, or in an app. For each debt, including the name, balance due, interest rate, minimum payment, and payment due date. Total up all of the minimum payments to get a sense of the least amount you’ll put toward debt every month.
Now you have a complete picture of your credit card debt, a crucial step toward defeating it. The numbers may shock you when you see it all together like that, and you may feel discouraged. Take the next step anyway. You can do this.
Review your debt list
Now that you know the numbers, it’s time to take a look at how and why you got here. Credit card debt can build for a number of reasons, and the two main causes are uncontrolled spending habits and emergency situations.
Both credit card companies and retailers do everything in their power to keep you swiping. They don’t just encourage spending, they specifically encourage credit card use and mobile payments because those don’t really feel like you’re spending money. That leads to overspending if you aren’t careful and don’t stick to a budget.
Start really paying attention to how much money you spend—you’ll be surprised. Another major feeder of credit card debt: emotional shopping (a.k.a retail therapy). Brain science tells us that shopping can increase feel-good brain chemicals like dopamine, and when you’re feeling down, that instant shot of happiness makes you feel better in the moment.
The trick is to be aware of that and find mood-boosting alternatives that don’t increase your debt load. That’s not to say that all emotional shopping is bad; only when you spend more than you can afford on something you don’t even really want.
Weird as it sounds, scientific studies show that people spend more (and not just on food) when they’re drunk or hungry. Don’t shop when you’re hungry, and never bring credit cards with you when you’ll be drinking.
Emergency credit card spending sounds unavoidable, but that’s not entirely true. Building up a hefty emergency fund can help you weather emergencies without going into credit card debt. That doesn’t mean you can’t ever use credit cards to cover emergencies; it means you can avoid getting trapped in credit card debt because of an emergency.
Even if you use your credit card on the spot, your emergency savings lets you pay it off rather than running a debt-building, interest-heavy balance. Once your credit card balances are cleared, start building your emergency fund right away.
2. Make A Paydown Plan
When you’re ready to start paying down your debt, make a plan that you can stick to. The best plans involve focusing on one debt at a time (your “focus” debt). When you zero in on a single debt, it’s easier to make and see progress.
Plus, it’s much less stressful to face a molehill than a mountain. The two most popular paydown plans are the snowball method and the avalanche method. Either will help you dig your way out of debt, so choose whichever feels more comfortable for you.
Avalanche normally works a little bit faster and saves you a little more interest. But it’s usually easier for people to stick with the snowball method because there are more victories early on. Both methods work well, and you don’t have to lock yourself in; you can switch between them whenever you want. The trick for success here is to pick the one you think will be easier to start with, and then get started.
No Matter Which Plan You Choose
Whichever method you go for, make sure to do these four things:
- Pick one focus debt that you’ll put extra money toward
- Throw every dollar you can at that focus debt
- Make multiple payments throughout the month (rather than one on the due date) to minimize the next month’s interest charge
- Make on-time minimum payments every month on every debt
That last point is important. Any skipped or late payments will be hit with expensive penalties that take your debt in the wrong direction and make it even harder to pay down.
Avoid even the possibility of late payments by setting up automatic payments to cover the minimum for every credit card, including the focus debt.
There is a fifth thing to do, but this one can be extra tough: Stop using your credit cards except for actual emergencies. It’s practically impossible to pay credit card debt off if you’re adding new charges every month.
The Avalanche Method
With the avalanche method, you’ll rank your credit card debts by interest rate, from highest to lowest, and focus on the most expensive debt first. Regardless of how big that debt is, you’ll save money in interest, which leaves more money for paying down the balance.
You can find your current credit card interest rates (sometimes listed as APR) right on the statements. Pick the card with the highest rate, and start paying that one down as fast as you can. Once it’s paid off, you’ll move to the next highest rate, and keep going until all of the cards are paid off.
The Snowball Method
If you like extra encouragement and motivation, the snowball method may work well for you. Using this plan, you’ll pay down your first focus debt more quickly, and get a sense of accomplishment as you cross it off the list.
You’ll be able to clearly see your progress, and that little rush (it’s true; it’s science) will help keep the paydown practice going. With this method, you’ll list your debt in order of balance, from lowest to highest. Your smallest debt will be your first focus debt.
Once that one’s settled, you’ll use the money you’d been putting toward it to pay the next debt on your list (your payments will “snowball”). You’ll keep paying off debts and moving down the list until all of the debts are paid off.
Automating your payments is a simple way to ensure your debts are being paid so you do not rack up late fees. If, however, you are using a debt snowball or avalanche approach, it is imperative you contribute exactly what you intend to each account.
3. Consider debt consolidation
Consolidate your debt payments into one account if you have good credit but feel overwhelmed by debt payments. As a result, you need to make only one payment per month to chip away at the balance.
0% balance transfer credit card
Applying for a credit card when you’re trying to pay off credit card debt might seem counterintuitive, but 0% balance transfer cards can save you a lot of money in the long run. Consider getting a credit card with a long 0% introductory period – 15 to 18 months is ideal – and transferring your entire credit card debt to it. The monthly payment will be simple, and there will be no interest.
Learn more about how credit card balance transfers work.
To pay off your debt, you can also take out a fixed-rate debt consolidation loan. The interest rates on personal loans are usually lower than those on credit cards, which can still help you save some money. Estimate your savings using a consolidation calculator.
4. Work with your creditors
Let your creditors know what’s going on. Especially if you’ve been using the card for years and have a good track record of payments, you may be able to negotiate payment terms or request a hardship program.
An issuer’s hardship program can provide relief when circumstances beyond your control affect your ability to pay your bills, such as unemployment or illness. You may be able to obtain more affordable interest rates or waived fees by negotiating with your issuer or accepting the terms of a hardship program, depending on the issuer.
Small changes may be just enough to help you pay down your debt, and the worst that can happen is that they say no.
Learn more about how to negotiate with creditors.
5. Consider debt relief options
If you can’t pay your total debt each month and are really having trouble getting out of debt, you may need to take more drastic measures. For instance, you may consider bankruptcy or a debt management plan.
Debt management plan
Credit counseling agencies help consumers create debt management plans. Counselors work with your creditors to negotiate new terms and consolidate your credit card debt. They charge you a fixed fee per month. You may have to close your credit accounts and refrain from obtaining new ones for some time.
If you file for Chapter 7 bankruptcy, you will be able to wipe out unsecured debt, such as credit cards, but there will be repercussions. You can restructure your debts into a 3 to 5-year payment plan with Chapter 13 bankruptcy. Chapter 13 is best if you want to keep your assets. While your credit score will likely bounce back in the months following filing, it can stay on your credit report for up to 10 years. In bankruptcy, certain debts, such as student loans and tax debt, are usually not wiped out.
In debt settlement, a creditor accepts less than what you owe. This may sound like a good deal, but most people cannot afford it. Debt settlement companies usually negotiate on your behalf with your creditors.