How to Get Out of Credit Card Debt... For Good

Credit card debt doesn’t have to crush your budget. Take the proper steps and you can get out of credit card debt once and for all. Here’s how how to pay off your credit card debt.

Credit card debt is a national epidemic. According to one survey, the average U.S. household with credit card debt owes $16,425. Just the interest on this debt can easily exceed $1,000 a year.

Credit card debt won’t vanish overnight. However, it can vanish if you take some small steps. Here are five ways to pay off your credit card debt.

Audit Your Charging Habits

Does your credit card balance mystify you at the end of every month? Tracking your spending could help with that. There are many online tools and budgeting apps that allow you to break down your spending. Here are a few of our favorites:

• Empower: This free online tool will automatically track and categorize your spending. It also tracks all of your investments.
• Mint.com: This free tool is similar to Empower and is a popular option.
• YNAB: This is our favorite budgeting app.

You’ll find a complete list of the best budgeting apps here.

Your credit card company may all provide a free spending app. Discover, for example, has an excellent tool that tracks your spending on the card by category.

(Personal Capital is now Empower)

Squeeze Extra Cash From Your Budget

It’s probably going to take a little pain to get out of credit card debt for good. Do your best to find extra cash hiding somewhere in your budget. Here are the steps to get there:

• Create a list of all of your monthly bills
• Look for unnecessary costs you can eliminate
• Look for auto-pay billing errors from businesses or services you no longer use
• Scrutinize bills that could potentially be reduced through negotiating, switching providers or bundling services
• Look into refinancing your mortgage if you own a home

How can you lower or eliminate bills that just aren’t working for your debt-reduction plan? Ask everyone from landlords to cable providers if they can lower your rates or offer you better deals. Also, make sure the cancellation fees for getting rid of a phone plan or shutting off cable won’t be counterproductive.

Reduce Your Interest Rate

You could reduce payments by reducing your interest rate. How do you do this? There are two ways.

The easiest way is to ask. Most credit card companies are willing to lower rates if cardholders call and request a reduction. According to one survey, 84 percent of those who asked for a rate reduction or other concession received it.

Second, you transfer your balances to 0% credit cards. With these cards, you can receive 0% for up to 21 months. There is typically a balance transfer fee of about 3%. But this is far less than the interest rates charged by credit card companies. You can find a list of the best balance transfer credit cards here.

Note: Obtaining a new 0% credit card won’t be worth the benefits if you make new charges to the old card.  If necessary, cut up the old card so you won’t use it.

Take Things One Card at a Time

Focus on the card with the lowest balance if paying off at least one card quickly is your goal. If your goal is to try to rescue your credit score, focus on the card with the highest utilization rate. This can be found by dividing your balance by a card’s limit. Don’t forget to make the minimum payments on all other cards while you’re targeting your priority card.

Resource: Use this Debt Snowball Calculator to compare the best way to pay off your debt.

Stop Using Credit Cards for a While

A serious problem sometimes requires a drastic solution. You’re unlikely to get out of the debt cycle unless you stop using your credit card to make purchases. Cut up your cards, have a friend lock them away in a drawer or simply remove them from your wallet to avoid the temptation to fall back into old habits. Just make sure to have an alternative method for making emergency payments in the event that you become stuck or stranded somewhere without cash.