How should you pay off credit cards

Paying off credit card debt can feel intimidating. So consider these five strategies to help you pay off debt with confidence

June 16, 2022 |7 min read

Maybe you’ve slowly increased your credit card balance over time, or you had to cover a large, unexpected expense with your card. If you’re carrying a credit card balance from month to month, it might be time to focus on paying it off.  

Even if it feels daunting, paying off your credit card debt is possible. Talking to a financial expert can help. You can also consider reaching out to your creditors to see if they’ll work with you. Here are some ways to help you make a plan and stay focused.

Why Being Debt Free Is Important

Credit card debt can impact your overall financial health in several ways. Your balance may grow larger over time because of interest charges. If you’re making only the minimum payment each month, it could take a long time to fully pay off the debt. Plus fees for any late or missed payments can add up. 

A large credit card balance can also negatively impact your credit, since credit scores are partially based on your credit utilization. And using too much of your available credit can push you past the 30% utilization rate experts recommend.

Another perk of paying off your credit card debt is potentially having more room in your budget for saving money and rewarding yourself every now and then. 

Understand How the Debt Happened

Figuring out how you got into debt might help you avoid overspending in the future. Try going over your credit card statements from the past few months to find patterns in your habits. Are there places where you can make some changes to your daily or monthly spending? 

For example, maybe you can cancel the gym membership and work out at home or you can cook more of your meals instead of dining out. 

If your credit card debt was the result of a large, unexpected expense, you might make a plan to create an emergency fund. This can help you cover big bills in the future without going into debt. 

5 Ways to Pay Off Your Debt

You can start paying off credit card debt by choosing a strategy, reducing your spending and making a few key changes. 

1. Choose a Debt Payoff Strategy

Creating a plan can help you figure out what works best for you and even help provide motivation. There are two basic strategies that can help you reduce debt:

• Pay off high-interest debts first. Using a strategy sometimes called the avalanche method, you’ll make the minimum payments on all your debts, but put extra money toward the balance with the highest interest rate. This can help you save money in the long term because high-interest debts are more costly. 
• Pay off the smallest debts first. If you need to build momentum in your debt payoff plan, the snowball method might make more sense. With this strategy, you’ll again make the minimum payments on all your debts. But then focus on putting any available money toward paying off your smallest balance first. Once you’ve paid that off, you can dedicate any funds that have been freed up to your next smallest debt and so on.

2. Pay More Than the Minimum

You should always pay as much of your full credit card balance as you can, according to the Consumer Financial Protection Bureau.

Why? Paying more than the minimum payment can help you pay off debt more quickly than if you just paid the minimum. That’s because paying more can help you cover the credit card interest charged while also decreasing the total balance on your card.

Paying more than the minimum also helps limit the interest you’ll owe over time. And the less interest charged, the lower your minimum payments could be.

3. Reduce Your Spending

When you reduce spending, you can put more money toward debt and potentially even save money on interest. Here are some ways to track your spending and cut down on expenses: 

• Create a budget. List your monthly bills, such as rent, utilities and groceries, along with your debts, such as credit card balances and student loans. Write down how much you earn each month, and subtract your bills and minimum required debt payments. The amount you have left over is a starting place to consider how much extra to put toward your debt payoff each month.
• Set a goal. Once you know how much debt you have and how much you can pay toward it each month, figure out how long it will take to pay off the debt. Mark that date on your calendar. Having a goal in mind can keep you focused and motivated. 
• Track your spending. Use whatever method works best for you, whether that’s an app, a spreadsheet, or a pen and paper. Write down everything you spend money on, and review the log every few weeks. This is a good way to better understand your spending habits and potentially find areas where you can cut back. 
• Tell a friend or family member. If they know you’re working toward a debt payoff goal, your friends and family can offer support. They may also help you think of ways to budget or fun things to do for free, both of which can help you stick to the goal while still living your life.

4. Switch to Cash Only

While you’re paying down debt, it may be helpful to pay for things in cash so you’re not increasing your credit card balances. And if you need to use a card for your payments, consider using a debit card so you’re not borrowing money.

5. Consolidate or Transfer Your Credit Card Debt

Another option for paying down credit card debt is debt consolidation or combining multiple balances into a single new one. Some people use a credit card balance transfer or a debt consolidation loan for this purpose. 

A balance transfer credit card offer lets you move unpaid debt from one or more accounts to a new credit card. These cards often come with a lower interest rate for a limited time, which could help you save money if you’re approved. The interest rate typically increases after the intro period ends. So it’s a good idea to make sure you can pay off the balance within that time frame. 

For example, let’s say you have $5,000 in credit card debt and you open a balance transfer credit card with a 0% introductory APR. If the promotional period lasts 18 months, then you’d need to pay about $278 a month to pay off the balance before the interest rate increases. 

It’s also a good idea to check whether the card charges any fees and understand the card’s terms and conditions before you apply so you can make a fully informed decision.

See How Debt Payoff Helps Your Credit

Too much credit card debt can potentially stand in the way of strengthening your financial health. Balances can grow over time, and they can negatively impact your credit score. And that can affect your ability to qualify for new loans and credit cards in the future. 

While it’s not easy, paying off credit card debt is possible if you set up a debt payoff plan. Tracking your credit can also help. Plus, once you start paying down your credit card balances, your credit score may even increase. 

CreditWise from Capital One also makes it easy to monitor your credit. It shows you a breakdown of your total balances and helps you keep track of your credit utilization rate, which is an important part of your credit score. It’s free for everyone—even if you don't have a Capital One account. And checking won’t hurt your score, so you can take a look as often as you like. 

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