How to pay off credit card debt: 6 steps, with numbers

Credit card debt is expensive mostly because of time. The longer a balance sits at 20%+ APR, the more of each payment goes to interest. The single biggest lever is how much you pay each month, so start with what that looks like in numbers.

What each extra dollar does

One card, 5,000 balance, 24.99% APR, a fixed payment every month and no new charges:

Going from 150 to 300 a month cuts more than three years and roughly 2,400 in interest. Interest is estimated monthly as APR ÷ 12; card issuers usually calculate daily, so real numbers differ a little.

The 6 steps

1. Stop adding to the balance. Move subscriptions and bills to debit and leave the card out of your wallet while you pay it down. Paying off a card you keep using is running on a treadmill.
2. List every card. Balance, APR and minimum payment. Seeing the total in one place is often the moment the plan becomes real.
3. Pick a fixed payment above the minimum. Minimums shrink as the balance shrinks, which stretches the debt out for years. A fixed amount does the opposite.
4. Choose an order. With several cards, put the extra money on one at a time: the highest APR first (avalanche, less interest) or the smallest balance first (snowball, faster first win). See both worked out on real numbers.
5. Ask for a lower rate. A call to the issuer sometimes works, especially with a good payment history. A balance transfer card can help too, but count the transfer fee and know when the promo rate ends.
6. Roll payments over. When one card hits zero, add its whole payment to the next card. Your monthly total stays the same while each balance falls faster.

This is general information, not financial advice. If you cannot cover your minimums, a nonprofit credit counseling service can help you look at options.

Keep reading

Sinking funds list · Snowball vs avalanche example · Holiday budget plan · How to budget your money