How to Pay Off Credit Card Debt in 9 Ways

Whether you’re looking to pay off $500 or $5,000 in credit card debt, there’s no one-size-fits-all answer to debt repayment. A reasonable plan must take into account your income, the amount of credit card debt you have and your financial priorities.

However, there are still strategies for paying off credit card debt that can be useful for anyone, regardless of your situation.

How to pay off $500 or more in credit card debt

Your first step in getting out of credit card debt involves evaluating your finances to determine where you stand. If you can’t pay more than the minimum on your  cards, for example, you might seek out additional sources of income, like freelance work or a part-time job. Doing so would open new ways of managing your debt, though we offer some options below if you can’t currently make payments.

A budget can be a powerful tool to track what money is coming in and going. You can create your own budget or download an app that pulls spending and earnings directly from your bank account and displays it in a dashboard. A popular budget strategy is the envelope method, where you set aside the exact amount of cash you need each month, placing hard limits on spending. Those that would prefer an app may find Mint or You Need a Budget (YNAB) provide needed accountability.

With a better understanding of your finances, you can make moves to create room in your budget to pay off credit card debt.

9 ways to pay off credit card debt

If you’re looking to pay off $500, $5,000 or more in credit card debt, these nine strategies can help:

1. Debt snowball method
2. Debt avalanche method
3. Balance transfer credit card
4. Credit card consolidation loan
5. Home equity loan or home equity line of credit (HELOC)
6. Credit counseling
7. 401(k) loan
8. Debt settlement
9. Bankruptcy

1. Debt snowball method

If you have free cash in your budget, the debt snowball strategy sets you up for quick wins early on in your repayment journey so you stay motivated and encouraged. Here’s how it works:

1. Make a list of all your credit card debt balances and order them from smallest to largest.
2. Pay the minimum amount on each debt every month, but make extra payments on your smallest debt.
3. Once you repay that debt, take the money you’ve freed up and pay off the next smallest debt.
4. Cycle through steps 2 to 3 until you have paid off all your debt.

As an example, let’s say you have the following debt accounts:

• Account A: $4,000 balance and 21.0% APR
• Account B: $15,000 balance and 16.2% APR
• Account C: $250 balance and 19.5% APR

If you follow the debt snowball method, you would pay off Account C first, as it has the smallest balance. Once it’s repaid, you’d target Account A and then finally Account B. Conquering smaller balances one at a time gives you motivation to tackle the next. And as you clear your debts, you free up more funds for the next account.

This method is not without its disadvantages, however. You might pay more in interest charges compared to other debt repayment strategies, such as a debt avalanche. That’s because a debt snowball doesn’t take interest rates into account, so you could spend several months paying off a low-cost debt. But if quick wins keep you motivated, then a debt snowball can be an effective strategy.

2. Debt avalanche method

The debt avalanche method, also known as debt stacking, looks a lot like the debt snowball method — but with one key distinction. Instead of paying off the smallest balance first, you start with the highest interest rate and work your way down.

Here’s what it would look like applied to the example from the previous section:

• Account A: $4,000 balance and 21.0% APR
• Account B: $15,000 balance and 16.2% APR
• Account C: $250 balance and 19.5% APR

In this situation, you would pay down Account A first, Account C next and Account B last.

The debt avalanche is a great option if you want to spend less on fees and get out of credit card debt quicker. Credit cards with high interest rates can keep you in the red longer as a larger part of your monthly payments go toward paying interest rather than decreasing the principal.

By tackling debts with the highest interest rates first, you’ll get rid of these pesky penalties sooner and free up more funds to pay off the rest of your credit card balances. Just like an avalanche, it takes a lot before you see any changes. But once you reach the tipping point, everything falls into place quicker than you’d expect.

However, because it can take longer to see results compared to a debt snowball, this repayment strategy can be discouraging for some people.

3. Balance transfer credit card

Credit cards carry notoriously high interest rates. New cardholders with poor credit bear the brunt of this, with rates that can soar above 20%.

But by moving your balance from a high-interest credit card to one with a lower rate, you can whittle down your debt without interest eating up such a large part of your payments. Some issuers will even offer a 0% introductory APR to sweeten the deal.

These introductory rates typically last between 12 to 24 months. Ideally, you want to pay off the balance before the introductory period is over. Otherwise, you may find yourself worse off than before, if your generous 0% APR offer turns into a higher-than-average interest rate and you’re charged back interest from the original purchase date.

This option is best for those with good or excellent credit, as you’re more likely to receive a better deal and be approved. Just make sure to check the fine print before you sign. Some issuers may charge you a balance transfer fee equal to 3% to 5% of the transferred amount. Compare that fee to potential savings from transferring your debt.

4. Credit card consolidation loan

Another option to consider if you have good credit: low-interest personal loans. Credit card consolidation loans are used to pay off several debts at once, combining them into one balance with one monthly payment and a fixed interest rate and repayment period. Preferably, the new loan would have a lower interest rate than any of your credit cards, to make repayment more affordable.

Personal loan rates vary between 5% and above 30%, while rates for credit card offers typically start at about 15%. Over time, the money you save by consolidating your credit card debt adds up.

Consolidation loans also take the guesswork out of how to pay down credit card debt. You know how much to pay every month, and your repayment schedule guarantees that you clear the balance by the end of your loan term. It’s like having your repayment plan laid out for you – all you have to do is follow it.

5. Home equity loan or home equity line of credit (HELOC)

If you’re a homeowner with sizable equity in your house, borrowing money against it may be an option to consider. Home equity loans provide you with a lump sum amount that you’d pay back in regular installments, much like a personal loan.

With a home equity line of credit (HELOC), on the other hand, you have more flexibility in your borrowing and repayment terms. HELOCs are comparable to credit cards, in that you can borrow up to 80% to 90% of the equity in your home whenever you need to and pay the amount back over several months.

These alternatives may appeal to you if you’re willing to take on secured debt. The rates are lower and your interest is tax-deductible.

Make sure to steer clear of home equity loans and HELOCs if you’re risk-averse or are dealing with unpredictable finances, however. If you default on your loan for credit card debt, you could risk foreclosure and lose your house.

6. Credit counseling

Credit counseling services offered by nonprofit organizations help you manage your debt and improve your financial literacy, especially if you’re new to personal finance management.

In your first meeting with a credit counselor, they’ll learn about your financial situation and point you to resources you may need, such as educational materials and debt management classes. Certified counselors understand the intricacies of topics like credit and bankruptcy, allowing them to devise a personalized plan to help you get out of credit card debt.

They may recommend you enroll in a debt management plan. With this type of plan, your credit counselor will act as the intermediary between you and your creditors. They’ll make debt payments on your behalf, negotiate with creditors to potentially get your interest rates reduced and fees waived.

Although a debt management plan may come with a monthly fee, depending on your circumstances it may be waived. To find reputable credit counseling agencies, check this resource from the Department of Justice.

7. 401(k) loan

If you have retirement savings, you can borrow against them in what’s called a 401(k) loan.

Despite the label, this method isn’t considered a true loan. Instead, think of it as borrowing money from your 401(k) and reinvesting the funds one payment at a time. Specific guidelines vary between employers, but generally you can borrow up to $50,000 or half of the balance in your account. Since you’re borrowing from yourself, you can qualify with faulty credit, as well.

However, remember that 401(k) accounts are valuable investments, with interest that compounds exponentially. By borrowing from your retirement fund, you lose the financial gains you’ve made so far along with the ones you’d make in the future. You’re also subject to a multitude of penalties, fees and taxes – and you’re responsible for covering the entire “loan” balance within a short window of time if you leave the company.

Without a plan in place, you put your long-term financial security at risk, so try to avoid this option if possible.

8. Debt settlement

Settling credit card debt involves negotiating with creditors so that you only pay a portion of what you owe. Settling a debt will hurt your credit, so weigh that impact versus getting rid of the debt. Debt settlement can be done by yourself. Though you may see debt settlement companies offering to do the work for you, we don’t recommend using them.

Debt settlement companies charge you for services you can do yourself, and they can’t (and shouldn’t) guarantee success. Some require you to make monthly payments through them rather than directly to your creditors, and dubious companies will take your money without improving your financial situation.

Many debt settlement companies will also ask you to stop making payments to your creditors, to pressure them into settling your debts for less than what you owe. So if you do decide to go this route, know that you may go through the collections process as well. Missing payments and settling accounts for less than what you owe will bring down your credit score. In the worst case scenario, it can even lead to lawsuits and wage garnishment.

9. Bankruptcy

When you’ve exhausted all other options, bankruptcy may be a way to get a clean slate. There are two types of bankruptcy that you can file for as an individual:

• Chapter 7 bankruptcy, which discharges your debt after examining your assets and liquidating non-exempt ones like vehicles and fine jewelry pieces.
• Chapter 13 bankruptcy, which requires you to complete a three- to five-year repayment plan before your debts are discharged.

The irony of these debt relief methods is how expensive they are, considering that it’s bankruptcy you’re filing for. Even without taking Chapter 13 repayment plans into account, you’ll also have to consider your bankruptcy attorney fees, court filing fees and mandatory bankruptcy courses. You can expect to pay, on average, somewhere between $1,600 and $5,500 to file a case.

Pursuing bankruptcy will have huge consequences on your finances. Like most other negative credit information, it will stay on your credit report for up to 10 years.

What to do after you escape credit card debt

As you wave goodbye to your credit card debt, know that personal financial management doesn’t stop here. It’s a journey, not a destination.

By following the same strategies you used for paying down credit card debt – along with the knowledge you might have gained from credit counseling – you can maintain your financial freedom. Your next steps include:

• Staying debt-free. This isn’t the time to pile on new debt, just because you can. Spend less than you make, and consider using the money you’ve now freed up to invest in your future. Put money toward a home renovation, save for retirement or start an emergency fund.
• Keeping your credit cards open. They’re important for maintaining a high credit score, especially if you’ve had them for a long time, if the accounts carry a large credit limit or both. Keep your cards active by using them for low-ticket monthly subscriptions like Spotify or Netflix. Just make sure to pay the balance before the end of the month.
• Avoiding temptation. If you’re an impulse buyer, consider keeping your credit cards out of reach. Hide them away, lock them in your safe or cut them up — do whatever you need to do to avoid racking up debt again. Unsubscribe from the mailing lists of your favorite stores, and maybe even close your Amazon Prime account if you find yourself spending more than you should.
• Budgeting for small “cheat” purchases. On the other hand, if it feels impossible to cut out impulse spending completely, set aside an allowance for small indulgences every month. Just as cheat meals help prevent you from going off the rails on your diet, “cheat” purchases like a frappé or movie tickets help you to maintain control over your carefully-calculated budget.