How to get rid of credit card debt

Struggling with credit card debt is more common than most of us care to admit. Recent research from Empower shows that nearly one in four people who carry credit card debt owe more than $10,000. That kind of debt can have serious impacts on your financial health, and, ultimately, your quality of life. 

Yet, it doesn’t have to be that way. Various factors led you into debt, and by that same token, you can learn how to get rid of credit card debt, too. 

Building good financial habits to boost your success

Paying off credit card debt isn’t unlike losing weight. The unfortunate part is that — yes — it can be difficult. 

There are helpful shortcuts you can use to get there quicker, but before we jump to those methods, it helps to cover the basics first. Not only will that help speed up your success, but it’ll also help ensure that once you get there, you stay debt-free — for good. 

Create a realistic budget

A budget is the single most important tool you have when it comes to getting rid of credit card debt. That’s because it lets you plan out the two biggest factors when it comes to getting out of (and staying out of) debt:

• Income: How much you earn each month, such as from a job, a side gig, government benefits, or self-employment. 
• Expenses: How much you spend each month, whether on necessary items like groceries and mortgage payments, or on unnecessary (but nice) things like vacations or clothing. 

If you don’t have sufficient income, you won’t be able to pay off your credit card debt, period. Similarly, if your expenses are too high, you also can’t pay off your debt effectively, and might even go into further debt. It’s the difference between the two points — income vs. expenses — that dictates whether you’ll be successful at all, and you grow that gap by following a budget. 

A good budget can take many different forms, depending on what’s most helpful to you. At a basic level, you should have a written list of all your monthly income and expenses. (Infrequent bills and income, like insurance payments or vested stocks, can be split up into monthly amounts.) This list serves as your guide for cutting your expenses and growing your income. 

Many people choose to track their monthly budgets with mobile apps, spreadsheets, or even physical envelopes with cash divvied up every payday. This helps ensure you’re not overspending, so you have money left over to pay off debt. 

Save up an emergency fund

If you’ve ever experienced the thrill of paying off all your credit card accounts only to go right back into debt a week later when something unexpected happens, you know how frustrating it can be. You can avoid this problem entirely by saving up an emergency fund before you enter serious debt-repayment mode. 

Any amount helps; some financial experts recommend starting with $1,000, but it depends on your comfort level and situation. If you have that strong base underneath you, you’ll be able to focus more easily on climbing out of a debt hole rather than just on treading water.

Avoid new debt

It’s easier said than done, but by avoiding new debt, it’ll be easier to pay off your existing debt (aside from taking out a debt consolidation loan, which we’ll get into in a bit). Sticking to a budget and having an emergency fund as a fallback will go a long way towards helping you stay out of debt. 

Many people prefer to stop using their credit cards entirely while working to get rid of their debt in order to avoid the temptation of letting their balances creep upward again. 

How to get rid of credit card debt: Strategies to try

Learning the basics, like budgeting and saving up an emergency fund, will help you regardless of your financial situation. However, they’ll be especially beneficial when it comes to using specific strategies for getting rid of credit card debt. 

Use the debt avalanche or snowball method

The most straightforward way to get rid of credit card debt is with the debt snowball or debt avalanche strategy. It requires little extra work besides finding extra money in your budget. Here’s how the strategy works:

1. Make an ordered list of your debts: The debt avalanche method orders your debts from highest interest rate to lowest, which saves money because you’ll get rid of the most expensive debt sooner. Some people prefer the debt snowball method, which orders your debts from smallest to largest balance in order to help you build momentum with quick wins.
2. Pay off the first debt in your list: Pay the minimum payment on all your other debts. All extra money you get should go toward paying off the top-level debt first. 
3. Pay off the next debt: When the first debt is gone, move to the next debt on the list, and pay that off, too. Now that you’ve freed up a payment, you can apply that extra money to this debt, too. 
4. Rinse and repeat: Each time you pay off a debt, roll that newly freed cash to the next debt on your list. You’ll be making a very large monthly payment by the time you’re working on the last debt, which will help get rid of it very quickly. 

Consolidate your debt

Debt consolidation is a popular and time-tested strategy that involves taking out a lower-interest loan to pay off higher-interest debt. That way, more of your monthly payment will go toward paying down the balance, rather than to the lender. Here are a few types of debts that people commonly use to consolidate their credit card debt:

• Personal loan
• Home equity loan
• Home equity investment
• Home equity line of credit
• Balance transfer credit card

You’ll need a decent credit score in order to get approved for most debt consolidation loans. Additionally, you may see a small negative impact on your credit for a few months after you apply for debt consolidation, but you’ll generally see quick progress in rebuilding your credit after you pay off your credit cards.  

Negotiate lower interest rates or settlements

Many lenders are willing to work with you in offering a lower interest rate to help you make progress in repaying your debt, or even to settle your debt for less money entirely. It doesn’t hurt to try contacting your credit card company and see if they’d be willing to work with you. 

Debt settlement companies offer to do this work for you, but it’s typically very risky and can be very expensive. The Consumer Financial Protection Bureau advises Americans to think carefully about debt settlement companies for exactly this reason. 

Consider credit counseling or a debt management plan

Credit counseling organizations are nonprofit groups that offer free or affordable help in managing your credit card debt. (Not to be confused with debt repair or debt settlement companies, which are for-profit companies offering more limited solutions.) 

All credit counseling agencies start with a free intake session and assessment with a live, one-on-one trained credit counselor. Different agencies offer varying levels of support, though most also offer debt management plans to help you negotiate with your creditors and get rid of your debt sooner, without the risks of debt settlement.

File for bankruptcy

Bankruptcy has a negative stigma in the U.S., and indeed, it’s not a decision to be made lightly. However, if you’re unable to pay off your credit card debt in a reasonable amount of time, the U.S. legal system also provides a very clear and dedicated pathway through bankruptcy court for getting rid of many types of debt, including credit cards. 

There are actually two types of bankruptcy that you can use to get rid of credit card debt. Chapter 7 bankruptcy relies on selling some of your assets to repay creditors in exchange for a quicker reset, while Chapter 13 bankruptcy takes longer but often allows you to retain more of your assets. 

Bankruptcy is a complicated legal process. Experts recommend working with a bankruptcy attorney, which can increase the costs. It can also negatively impact your credit. 

The bottom line

Learning how to get rid of credit card debt isn’t easy. No matter which methods you choose, it’ll be a long process unless you’re lucky enough to come across a big windfall. Those who are most honest with themselves about what they can afford — and which temptations to avoid — are often the most successful in the end.