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How to get out of credit card debt

Learn the best ways to pay off credit card debt

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by Barbara Friedberg Personal Finance Contributing Editor
money and credit cards on table

Credit card debt is at an all-time high. The average American household with a credit card carries over $6,000 in credit card debt, according to Experian. It can seem overwhelming to tackle your credit card debt, and many Americans get trapped in a cycle of debt that’s difficult to recover from. But financial freedom is possible!

There are several ways you can start to take control of your debt, from increasing your income to working with a credit repair company. We’re going over five steps you can take to get out of credit card debt and manage your finances well.

5 steps to get out of credit card debt

Millions of Americans face considerable debt. It can be debilitating not knowing how or when you’ll pay off the balances you owe. Here are steps you can take to get out of credit card debt:

  1. Evaluate your finances and create a budget
    The first step to getting out of credit card debt requires an in-depth, honest look at your debt. How much do you owe? List all your debts, balances, monthly payments and due dates. Consider what you can afford to pay each month and how that compares with what you’re actually spending. This will help you establish a budget and stick to it. A credit card debt calculator makes it easy to assess your repayment options.
  2. Look for ways to increase your income and cut expenses
    If you have a hobby or special talent, consider monetizing it. You can also look for seasonal or temporary jobs to bring in some extra money. You don’t have to work multiple jobs to boost your income. Often, you can trim non-essentials from your life to keep more money in your wallet. Consider canceling your cable or gym membership, preparing meals at home instead of dining out and skipping your daily stop at the coffee shop. Put the money you save toward paying off your credit card debt.
  3. Find a debt repayment strategy that works for you
    You have a few options when it comes to paying off your credit card debt. Using something called the avalanche method, you tackle the credit cards with the highest interest rates first, aiming to knock out your debt swiftly and efficiently. The snowball method is another debt repayment strategy. Here, you pay off the cards with the smallest balance first. The blizzard method combines both strategies.
    Debt Repayment StrategyHow it Works
    AvalanchePay off credit cards with high interest rates first
    SnowballPay off credit cards with the smallest balance first
    BlizzardA combination of the avalanche and snowball strategy

  4. Pay more than the minimum balance
    If you’re only paying the minimum balance each month, it’s hard to make a dent in your credit card debt. Whenever possible, pay more than the minimum balance. Try paying double the minimum balance (or more) for faster debt reduction. This creates a ripple effect that helps you slash interest payments and lower your total debt.
  5. Seek help with credit counseling
    If you are struggling with deep debt and you don’t see a way out, a credit counselor can help you develop a debt management plan. Credit counseling is typically a free service offered by non-profit organizations specializing in financial education. A credit counselor will work with you to help you develop a budget, explore new ways to manage your money and advise you on additional financial tools and resources that will help you pay off your debt. A credit counselor might also follow up afterward to see how the financial plan is going. With the help of a financial advisor, it can be easier for you to find a way out of credit card debt.

Best ways to consolidate credit card debt

If you’re trying to figure out how to lower your credit card debt, consider debt consolidation. Debt consolidation is another debt management option that can help you reduce credit card debt. Debt consolidation works by combining multiple balances into one lump sum loan, which streamlines the payment process, typically with a reduced interest rate or a longer repayment term.

Here are some options for paying off credit card debt:

  • Debt consolidation loan
    Consolidating your debt might be the right option for you to help you get out of credit card debt. It’s often helpful to consolidate balances with a loan, putting them onto a single credit card or working with a credit counseling organization who will negotiate down your interest rates and consolidate your payments into one so you’re not paying multiple bills every month. The most clear-cut way to obtain a debt consolidation loan is through a bank or other debt consolidation lending institution.
  • 0% balance transfer card
    Balance transfer credit cards also allow you to consolidate your debt by transferring the debt of multiple credit cards to one balance transfer card. Many include zero percent interest offers along with sign-up bonuses and cash-back rewards.
  • Home equity loan
    A home equity loan is a type of second mortgage. Homeowners can take out an amount of money based on the equity they have in the home, determined by the amount of money paid into the mortgage over the value of the home. A home equity loan can be taken out to make home improvements, pay large bills or settle other debts.
  • 401k loan
    If you have a 401k set up through your employer, you can also borrow against that account. Because a 401k is a personal a retirement savings account, this is essentially borrowing from yourself. Because you’re withdrawing money from an account, not borrowing new money, a 401k loan will have no impact on your credit score. 401k loans typically require full repayment within five years.

    Even though you’re not borrowing from a bank or other lender, this form of loan is not without risks or penalties. There will be a small interest tacked onto your repayment plan, and you risk hurting your overall retirement savings plan. If you lose your job, you’ll be required to pay back the 401k loan by the time your federal income taxes are due for the year.

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Bottom line: How do I get out of credit card debt?

Paying off credit card debt once and for all requires more than simply paying down your cards. To stay debt-free, you need smart spending habits and a budget you can stick with for the long-term. That’s why it’s important to carefully consider your finances and create a budget you can stick to. Then, find a repayment strategy that works for you, whether that be avalanche, snowball or blizzard. If possible, pay more than just the minimum balance.

A free consultation with a credit counselor could be a great aid in helping you find a path out of credit card debt. If you’re in more dire circumstances and don’t believe you can pay off your debt solely with a practical budgeting system, consider consolidating your debt, getting a balance transfer car or applying for a home equity loan. Last of all, if no other options are available to you, considering seeking help from a debt settlement company.

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Profile picture of Barbara Friedberg
by Barbara Friedberg Personal Finance Contributing Editor

Barbara Friedberg, MBA, MS is a former investment portfolio manager with decades of financial experience. Friedberg taught Finance and Investments at several universities. Her work has been featured in U.S. News & World Report, Investopedia, Yahoo!Finance and many more publications.