7 Minute Read
If you have credit card debt, you’re not alone.
According to the Federal Reserve, total credit card payment values grew from $5.65 trillion in 2015 to $5.98 trillion in 2016.(1)
That means North America has an insane amount of credit card debt. And despite what society tells you, credit cards don’t have to be a way of life. Here’s how to pay off your credit card debt once and for all.
How do I start paying off my credit cards?
First things first, you need to organize your money. We can’t emphasize this enough. In order to crush your credit card debt and get ahead, you’ll need a plan. A budget is a plan for your money—a plan that gives every single dollar a purpose. In other words, if you bring home $3,000 a month, you’re going to tell every single cent of that $3,000 what to do before the month begins.
You see, disorganization in finances leads to impulsive behavior. And impulsive habits ultimately lead to debt. With a budget, you’ll organize and prioritize your spending in a way that ensures all your needs are met throughout the month. A budget will teach you how to stop buying things you can’t afford. It gives you guardrails to keep you on track and helps you change both your spending and your saving habits.
But hang with us here . . . creating a budget doesn’t mean you have to put the kibosh on all the fun things in your life. When you live on a budget, you’ll discover you have more money than you thought—because you’re spending your money on purpose. With a budget, you can make your payments and get ahead because you’ve taken the time to make a proactive plan for your cash.
The money course that will change your life!
We believe budgeting will rock your financial world—in a good way! That’s why we created a super-simple, free budgeting app: EveryDollar. We designed it to help you get your budget set up in minutes—so you can start paying off your credit card debt.
How do I know which credit card to pay off first?
When it comes to paying off credit card debt, we recommend a method called the debt snowball.
The debt snowball teaches you to pay off credit card debt—and all debt—in order of the smallest balance to the largest.
But wait. Doesn’t it make mathematical sense to pay off the credit card with the highest interest rate first?
Maybe. But numbers aren’t the problem here. Behavior is—and the point of the debt snowball method is behavior change. Paying off credit card debt by starting with the smallest balance will help you see progress early on. And that progress will fuel your motivation to pay off all your credit cards. When you begin with the smallest credit card balance, you’ll knock it out fast and keep the motivation to pay off the next credit card, and then the next, and the next.
And motivation will take you all the way to the finish line of paying off your credit card debt. BUT if you start with the largest debt, you could lose steam and quit before you even get close to finishing. We’ve seen it happen time and time again.
This is fastest way to pay off your credit card debt:
List your credit card debt from smallest to largest payoff balance. Don’t worry about interest rates.
Make minimum payments on all credit cards except the smallest. Attack the smallest card with everything you have.
Pay off the smallest credit card.
Close the account and dance around your living room. Party music is optional.
Take the money you were paying on the smallest credit card and roll it into paying off the next smallest balance.
Pay off that second credit card.
Close the account. Dance and cheer around your living room, because you’re beginning to gain control of your money. Turn the club music up loud this time, because your neighbors probably need to know what you’re doing so they can pay off their cards too.
Repeat this method until you pay off the very last credit card!
Look, we’ve helped 5 million people pay off their debt with this method. And we’re certain if you stick with this plan you’ll be debt-free in no time!
Should I keep my credit cards while paying them off?
No way, Jose. Keeping your credit cards is out of the question. In fact, go get every single credit card you own. Like, right now. Go. Go get them. Now, put them on your kitchen table. Grab some scissors and cut them up. You have to completely amputate your problem—credit cards.
Responsible credit card use just doesn’t exist, no matter what the famous actors tell you in commercials. There’s not a single good reason to keep a credit card around—not even for points and miles and all that baloney.
After you cut up your credit cards, remember to close the accounts once you pay off your balances.
What are other credit card repayment methods and do they work?
Look, paying off debt is never easy. You can’t find a quick fix—but you can find a time-tested, permanent solution if you’re willing to roll up your sleeves and work hard. We’re fully aware of the buzz surrounding “quick ways” to get rid of your debt.
In fact, here’s a look at the most often advertised ways to reduce debt, and our reasons why you should steer clear of these methods at all costs:
Debt consolidation. This is basically a loan that combines all your debts into one single payment. This sounds like a good idea until you discover the lifespan of your debt grows, which means you’ll stay in debt longer. Also, the low interest rate that looks so appealing up front usually goes up over time.
Debt settlement. Debt settlement companies are the cold sores of the financial world. Run from this option. Companies will charge you a fee and then promise to negotiate with your creditors or reduce what you owe. Typically, they just take your money and leave you responsible for your debt. No thanks!
401(k) loans. Never borrow from your 401(k) to pay off your debt! You could get hit with penalties, fees and taxes on your withdrawal.
Home equity loans. It’s never a good idea to borrow money against your home! You jeopardize losing your house if you’re unable to pay back the loan on time! Don’t do it!
These debt reduction strategies are risky at best and only treat the symptoms of your money problems. They’ll never help you address the core of why you have financial issues in the first place. You don’t need to consolidate, settle or borrow to deal with your debt. You need to change how you engage with your money.
That’s right—your money will never change until you do!
Are You Ready to Start Paying Off Your Credit Card Debt?
Credit card debt costs you more than you really want to pay. And we want to see you win with your personal finances so you’re freed up to live and give like no one else.
So, take the first step and create a budget. Then, knock out your smallest credit card balance using our debt snowball method. Bypass the debt consolidation nonsense, and you’ll be well on your way to getting out of debt—for good.
If you’re really ready to make a significant change, use our debt calculator to see how quickly you can become debt-free.