How to Get Out of Credit Card Debt Fast

You’ve gotten to the point where you’re tired of watching your hard-earned money disappear into credit card payments, and you want a change. It’s time to get started on clearing credit card debt from your life so you can breathe easier and move forward.

Those are all sensible feelings. Credit card balances usually have the highest interest rates of common types of debt. A key benefit of credit card debt relief is getting rid of those high interest charges. Then you can put your money into savings for the things you want—instead of your credit card companies’ pockets. 

Some strategies get you out of credit card debt faster than others. The best one to use depends on your situation. Get to know these ways to pay off credit card debt so you can choose the approach that works best for you. That choice could be the first step toward your new and better financial future. 

Credit Card Debt and Its Impact

Having credit card debt can feel like sinking into quicksand. You find yourself steadily going deeper and deeper. 

Here’s why:

• Credit card interest rates are generally much higher. Other forms of consumer debt have lower interest rates. Until you start paying down credit card debt, heavy interest charges keep piling on to the amount you owe.

• Credit card minimum payments are very low. That may seem user-friendly, but it's not. Minimum payments are designed to stretch repayment out over a longer time so you pay more interest. A typical minimum payment barely makes a dent in what you owe.

• Credit card debt has no defined repayment period. Loans typically have regular payments made over a set schedule. With credit card debt, the payments can vary and you can repeatedly add to the amount you've borrowed. That allows credit card debt to drag on and on.

• Interest compounds over time. That means its impact will keep growing unless you do something about it. Besides interest on the amount you borrowed you may also find yourself paying interest charges on any unpaid interest from previous months. 

• Late fees can make the problem even worse. If you find yourself struggling to make payments, you may get hit with late fees. These are like pouring gasoline onto a fire—they just add to what you owe, making the problem even worse. 

For all these reasons, tackling credit card debt requires a sense of urgency. 

Paying off credit card debt is like a good investment. The benefits get bigger every month. The key is to find ways to pay off credit card debt faster.

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What Are Strategies to Pay Off Credit Card Debt Fast?

If you’ve decided it’s time to get rid of your credit card debt and put your financial house in order, you have plenty of options.

Getting to know the ins and outs of various debt reduction strategies could help you recognize which is best for your situation. Sometimes, the right answer is to use more than one strategy. 

Here are some of the most effective and popular methods:

• DIY payoff with the snowball or avalanche method

• Debt consolidation

• Debt counseling

• Debt management

• Debt settlement

• Bankruptcy

Whichever strategy you choose, the first step is to stop the problem from getting worse. That means you have to rein in your spending so you don't rely on continual borrowing.

Here's how to take control of your spending so you can stop adding to your debt headaches:

• Review your credit card and bank account statements to find out what you've been spending money on. 

• Add up what you regularly spend each month. Now compare that to your take-home pay. To pay down debt fast, you'll need to do more than get your spending down below your take-home pay. You may need to cut some expenses to leave extra room for larger debt payments.

• Separate essential expenses like housing costs and groceries from luxuries like dining out and entertainment.

• Decide which luxuries you could cut to get spending below your take-home pay and leave enough cushion to make additional debt payments. These cuts could be temporary.

• Now you have the basis of a new budget. This should consist of essential expenses plus only those luxuries that leave you ample room to pay down debt. 

• Continue to review your statements each month to check how well you're sticking to your budget. Make adjustments as needed.

• As you start to pay down debt, you should eventually notice your debt payments decrease. Use some of that money to start building an emergency fund. An emergency fund allows you to handle unexpected expenses without borrowing, so you could reduce the cost of those setbacks.

Nobody likes cutting back on fun things like restaurants, concerts, or movies. It's a little easier to handle if you look at it this way: paying down your debt will leave you more money to spend on those things in the long run. As you pay off debt, less of your money will go toward interest charges. That will leave you more money to spend the way you want to.

Accelerating Debt Reduction: Snowball and Avalanche

Debt reduction can be a big task. Two popular methods—the snowball and the avalanche—recognize that you may want to start small, then steadily gather momentum. 

Debt snowball method

A snowball gradually gathers size as you roll it along. With the debt snowball, you prioritize your credit card debt repayments from the smallest to the largest balance owed and pay as much as you can to account with the lowest balance. At the same time, you make the minimum payment on your card and other balances. 

That'll be the fastest way of eliminating one  debt balance: the smallest one. You can then apply the same strategy to the next smallest debt, and so on. The key is to take the entire payment you were using and roll it over to the next debt you’re working on. Your monthly payment grows with each paid-off debt, like a snowball gets bigger as it rolls along.

Say you have these debts:

Your minimum payments total $434. You work out a budget that allows you to put $500 a month toward debt reduction. That gives you an additional $66 to put toward debt.

Under the snowball method, you make minimum payments on the debts. The smallest bill, your $500 balance, gets the snowball treatment. You add the extra $66 to the minimum payment. When you accelerate payoff, you’ll wipe out that balance in five months. 

Now you’ve freed up $116 each month to add to the next balance you want to wipe out: your credit card bill. Paying $198 a month (instead of the minimum $82) will clear that debt in 16 months. 

Continue like this until all the debts are paid off. 

The snowball can be motivating because it’s the quickest way to visualize progress when you wipe out one debt after another. You get a real sense of making progress. As you continue, you have fewer bills to pay and more money left over for your remaining debts.

Debt avalanche method

An avalanche gathers size and force faster and faster as it roars forward. The debt avalanche is designed to make your debt reduction efforts increasingly effective as time goes on.

With the debt avalanche, you focus first on the debt with the highest APR while making minimum payments on the others until that first debt is paid off. Going by interest rates, the credit card is the clear choice for your first target. You'll add the extra $66 to the minimum payment, and now your payment is $148 a month. You’ll have the credit card paid off in one year and 10 months. 

By paying down that debt faster, you'd be reducing the balance that's being charged the highest interest rate. This makes your payments more impactful.

With these debt examples, it’s going to take you a little longer to get to your first payoff compared to the snowball method. But you could save money on interest charges. 

By using the avalanche method (and if you don’t add new debt), you’ll find your total debt decline faster. You'll also pay less interest in the long run. 

Make More Than the Minimum Payment

The snowball and avalanche methods both have you pay more than the minimum each month. 

Over time, this gives your payments more bang for your buck. Here's how:

• A common formula for minimum monthly payments is to charge 1% plus any interest and fees incurred during the month. Some cards may have a payment floor, such as $35 a month.

• Under that formula, the portion of your payment that goes toward paying down your balance is based on a percentage of that balance. So, as your balance gets smaller, so does the amount of each payment that goes towards paying it down. This stretches out your debt for a longer time, causing you to pay more interest.

• A Brookings Institution analysis shows the true cost of extended repayment with a $3,000 credit card debt at 18% interest. Using a common formula for minimum payments, it would take 11.5 years to pay off that $3,000. Worse, you’d pay $3,154 in interest on top of the $3,000 principal. 

This example assumes there's no further spending on the card. If you continued to use the card, chances are you'd find your balance go up rather than down over time.

The solution is to pay more than the minimum each month. This reduces the balance faster. You also reduce the amount of interest charged the next month. This way, your payments will have a growing impact on your balance each month.

Paying more than the minimum has a clear financial benefit. It also can do wonders for your peace of mind. You'll have the satisfaction of faster progress reducing your debt each month. 

That progress could motivate you to find the money in your budget to make extra payments. Cutting a few expenses now can get you debt-free faster. Perhaps you can work extra hours or find a part-time gig to give your debt reduction efforts a boost.

Ultimately, the payoff for these efforts is getting rid of debt payments. Then you'll be free to spend more of your money the way you want to. 

Debt Consolidation to Pay Off Credit Card Debt

Debt consolidation uses one source of credit, like a new loan, to pay off multiple existing debts.

Depending on your situation, debt consolidation could:

• Simplify your finances by reducing the number of monthly payments you have to make

• Reduce the interest you pay by exchanging high-interest debt for a lower-rate debt

• Adjust your monthly payment amount to better suit your financial resources

• Help your credit record by moving credit card debt to an installment loan

When you consider debt consolidation, think about whether you could accomplish one or more goals. If so, it may be a good tactic for you.

Two things to watch out for when using debt consolidation:

• Don't simply build credit card balances back up after you've consolidated them into new credit. It helps to tighten up your budget before committing to a debt consolidation program.

• After you've paid off some credit card balances, you don't necessarily want to close those accounts. Keeping them open gives you older credit accounts and lowers your credit utilization ratio. Both of these can help your credit score. However, people who've had chronic problems with debt may be better off in the long run closing some accounts.

Debt consolidation depends on having a good enough credit score to qualify for new credit to pay off old debts. How this works depends on what type of credit you can qualify for, and what types of debt you have.

Possibilities include consolidating debt with a balance transfer credit card, a personal loan, or a home equity loan.

Balance transfer credit card

A balance transfer credit card typically has an introductory zero-interest period of 12 to 21 months. 

The idea is to transfer existing credit card balances to your new balance transfer card. That way, you'd pay no interest during the introductory period. If you can eliminate interest charges, your full payments can go towards debt reduction. 

However, there’s usually a cost. Most balance transfer cards charge 3% to 5% of the amount transferred. Also, after the introductory period you would begin paying interest on any remaining balance. This may be at a higher rate than you were paying on your credit cards previously. 

Balance transfer cards work best if:

• The money you save by paying no interest during the introductory period exceeds the cost of the balance transfer fees

• You have a plan for paying off the balance in full before the zero interest period ends

Two factors to look for when choosing a balance transfer card are:

• Size of the balance transfer fees: the smaller, the better

• Length of the 0% intro period: the longer, the better

Personal loan

Personal loans are usually unsecured installment loans. Interest rates are typically lower than credit card rates, which  makes them a good tool for debt consolidation. 

When considering a personal loan for debt consolidation, look at the affordability of the monthly payments. Also take into account the total amount you have to pay over the life of the loan.

A side benefit of using a personal loan for debt consolidation is that it could improve your credit mix. 

Credit comes in two major types: 

• Revolving credit, like credit cards

• Installment loans 

Having experience with both types of credit could have a positive effect on your credit standing. 

Personal loans may be available for people with poor credit scores, but these are likely to have high interest rates. Using a personal loan for debt consolidation makes the most sense if your credit score is fair or better.

Home equity loan

If you own a home and have some equity in it, that’s a resource you could use for debt consolidation.

A home equity loan is guaranteed by your home. That means if you fail to repay the loan, you could lose the home. This is a financial safety net for the lender. The result is that home equity loans could be easier to qualify for than other types of credit. Also, the interest rates tend to be lower than for other borrowing options, which could make them an excellent tool for debt consolidation. 

With home equity loans, you have the option of stretching payments out over a long time. This could make the monthly payments more affordable. The longer you take to repay a debt, the more interest you’ll pay.  

A home equity loan could diversify your credit mix in a way that helps your credit record. 

Moving your credit card debt to a personal loan or home equity loan could have a positive effect on your credit. It can improve your credit utilization ratio. That ratio compares your credit card balances to your credit limits. Higher utilization tends to hurt credit scores, but installment loans don’t affect your credit the same way.

Using a home equity loan for debt consolidation has excellent potential for saving money. The key is to budget carefully to be sure you can afford the payments. That way, you won't put your home at risk. 

Credit Counseling

If you can't qualify for a debt consolidation loan or you simply can't decide how to pay off credit card debt, credit counseling might help. 

Nonprofit credit counseling agencies could help you solve overspending problems. Credit counselors are typically certified and have experience in consumer credit, financial and debt counseling, and budgeting. Counselors consult with you, review your finances, and help develop a personalized strategy to get you out of debt.

Credit counseling could help you understand your debt reduction options. It can also take a more hands-on role in helping you manage your debt payments.

Credit counseling education and information

Talking to a credit counselor can give you the benefit of their experience. It helps to work with someone who's been through this kind of situation many times before. 

Credit counselors can take you through the pros and cons of different debt reduction efforts. They can tell you what to look for when considering financial products such as credit cards and loans. They can also help you set up a budget to help stop the cycle of continuous borrowing and free up more money to pay off credit card debt. 

This kind of advice can be helpful. However, a debt counselor will generally provide limited services unless you're willing to sign up for a debt management plan. 

Debt management plan (DMP)

One service credit counseling agencies offer is a debt management plan (DMP). These plans organize your payments and figure out how to best use your resources to pay off debt. 

In a debt management plan, you make one monthly payment,which includes fees for the plan, to a credit counselor. The money is then sent to your creditors. The credit counselor may also negotiate with individual creditors to get better repayment terms.

When you start a DMP, you may have to close your credit card accounts or at least stop using them for a while. That way, you stop adding to your balances when you’re supposed to be paying them off. You'll generally also pay a set-up fee and a monthly fee for as long as the DMP continues. That may prove to be money well spent if this solution helps you conquer debt problems.

Debt Relief

Sometimes it’s just just not possible to pay the full amount you owe. If that's the case, you may want to consider solutions that can reduce what you owe, such as debt relief and bankruptcy. 

In debt relief, a creditor agrees to accept less than the entire amount owed as full payment. You can negotiate this yourself or work with a debt settlement professional. 

Creditors are usually more likely to be open to a negotiated reduction in the amount owed only if you're missing payments. They'll also expect you to offer at least a partial payment.

People just like you are seeking debt relief in Colorado and across the country. The first step is the most important one—explore your options.

It can be hard to find money to offer when you’re struggling with debt. Some people choose to stop paying their bills in order to save money for settlement offers. If you stop making payments, your credit standing may suffer. People who are struggling with credit card debt may already have damaged their credit, and there may be more to gain than lose from negotiating a settlement.

When you’ve saved enough to make an offer, you or your representative can open negotiations with your creditors. 

The advantages of debt relief include:

• You may be able to get rid of some debt faster and for less money.

• Debt settlement, unlike bankruptcy, doesn't create a public record. You have more privacy.

• You only have to settle your debt if you agree to the terms. With bankruptcy, a judge or trustee tells you how much you have to pay, and what assets (things of value you own) you must turn over. 

• You shouldn't have to pay any fees until a creditor has agreed to a settlement and you've approved it. A reputable debt settlement firm won’t charge upfront fees (it’s against the law).

The drawbacks of debt relief include:

• Your creditors aren't required to settle with you. Instead they might keep calling you, turn your debt over to a collection agency, or even take you to court. 

• If you hire a debt relief company, expect to pay fees (15% to 25% of the enrolled amounts).

• If a portion of a debt is cancelled, it will be marked as "settled" rather than "paid in full" on your credit report. 

• Amounts forgiven in debt settlement are treated as taxable income unless you're considered insolvent (you owe more than the total value of your possessions). 

Bankruptcy (Chapter 7 and Chapter 13)

Another way to pay less than the total amount you owe is to declare bankruptcy and you explain to a court why you can't pay your debts. The judge and a court trustee review the details of your finances, and decide the best way to settle your debts.

The two most common forms of bankruptcy for individuals are Chapter 7 and Chapter 13. 

Chapter 7 bankruptcy

Chapter 7 usually makes the most sense for people with lower incomes and high unsecured debts. If you can afford a payment, you won’t qualify for Chapter 7.

In Chapter 7, the judge decides which of your possessions you can keep and which will be sold to pay your creditors. Then, your remaining eligible debts are discharged—in other words, you don't have to pay the rest. 

Chapter 7 bankruptcy works for unsecured debts like medical bills and credit card balances.

Filing for bankruptcy gives you protection from creditors. They have to stop trying to collect, and they can’t sue you for a debt or foreclose on your home. (They can start again when your case is complete.) Discharging your unsecured debts in bankruptcy could give you a chance to get caught up on debts that can’t be included in your bankruptcy filing.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is a payment plan, and you don’t lose any of your assets. You’ll have to pay all of your disposable income into your plan for five years (three if your income is below a threshold). 

The bankruptcy trustee distributes the money to your creditors, according to the court-ordered plan. 

After your plan is complete, any eligible remaining balances are forgiven, tax-free. 

There are limits to how much debt you can have to qualify for a Chapter 13 bankruptcy. Also, you have to submit your tax returns to the court every year, and the trustee may increase or decrease your payment accordingly.

How to Stay Motivated During Your Debt Payoff Journey

Paying off debt can be difficult. But the rewards are terrific in the long run. To get there, you're going to have to make some hard choices about cutting spending and resisting the temptation to keep borrowing.

Setting goals and tracking progress toward those goals could help keep you motivated. When you begin, make a note of your total debt balance. Then keep track of that total each month. 

Celebrate milestones along the way, such as balances paid off or every thousand dollars in debt reduced. You might start by dividing your total debt by four. That way, you can celebrate completing each quarter of the journey.

For example, if you have $20,000 in debt, consider every $5,000 in debt reduction a milestone. You can celebrate as you reach the $15,000, $10,000, and $5,000 marks. The ultimate celebration comes when you reach $0 in debt—and it will happen.

As you take this journey, bring family and friends along for the ride. After all, your family will be affected as you start cutting spending. Let them know why you're doing it and what progress you're making. Explain how they'll benefit when your budget is no longer burdened by debt and interest payments.

As for friends, you don't have to go into too much detail, but it could be important for them to know you're trying to conquer debt. This should make it easier for them to understand why you want to avoid expensive activities. You may even find that some of them are dealing with the same issues and will welcome the chance to spend less while socializing. 

Getting family and friends on your side can earn you support along your debt reduction journey. It also allows you to share your successes with those people. 

Paying off Credit Card Debt Can Have Multiple Benefits

If you're struggling to pay off credit card debt, you have several options. You can pursue these options yourself or get professional help. 

Often, getting started is the hardest part. Usually, the longer you wait, the worse debt problems become. So the sooner you begin, the sooner you can start working toward a better financial future.