There’s no way around it. Credit card debt is a great way to wreck your budget and steal away your hope for the future. It can be downright depressing when those bills come in. And every famous financial advisor has a list of the best ways to get out of credit card debt. Unfortunately, many of them are unrealistic. Are you really going to cut your living expenses by half and put all that money into paying off your debt?
If you can do it, great. But the average household income in the U.S. is around $75,000, and the average credit card debt is just under $8,000, according to NerdWallet. That means you’d need to pay a tenth of your monthly salary to pay off your credit cards in one year. And that’s not counting student loan debt, car payments, mortgages, and other similar debts.
Chin up, though. It’s not all doom and gloom. Taking a cold, hard look at reality is one of the best ways to get out of credit card debt, because we can see exactly where we stand and what steps we need to take. Each of the strategies we’re presenting here depends on an awareness of your income versus necessary expenses and what disposable income that leaves you.
If you don’t know your numbers, start there. Understand your monthly payments, your income, and where your money is going. Become hyper-aware of your spending habits. This is a powerful tool in a world where many people have two or three monthly subscriptions they don’t even know about.
The Four Best Ways to Get Out of Credit Card Debt
There are many ways to work your way out of debt. Knowing them all isn’t essential. Finding the right one for you is what matters. The following list of the best ways to get out of credit card debt focuses on practical and effective methods of freeing yourself from the sticky web of credit card debt.
Yes, they will take time. There’s no magic pill here. You’ll slip up, get frustrated, and maybe mad. The important thing, again, is to find a plan that works best for your situation and stick it out.
1. Snowball payment method
The snowball method is all about momentum and the psychological boost of small victories. Famed financial guru, Dave Ramsey, popularized the snowball method. While some in the finance business argue against his ideas, this method helps people climb out of crippling debt over time.
The method works by paying only the minimum monthly payment on all your credit cards, except for the one with the smallest balance. You go all in on that one. Pay as much as you can afford each month, and make extra payments when you can. The goal is to take an aggressive approach to one card. When that card is paid off, pat yourself on the back, then move on to the next card. This time, however, whatever you were paying on the first card gets “snowballed” into the new card.
For example, you have three cards with minimum payments of $25, and you’ve been making an additional $25 payment on the card with the lowest balance. So you’re paying $100 each month toward credit cards (three minimum payments of $25, plus an additional $25). When that first card is paid off, you take that $50 you’ve been paying and put it into the next card. Now you have two cards with $25 minimum payments, but you’re putting an additional $50 into the lowest balance card. You’re still paying $100 each month toward credit cards, but now you’re putting $75 toward one of them.
A better (although less rewarding) twist on the snowball method is to direct the extra payments towards the card with the highest interest rate instead of the smallest balance. It may take a little longer to cut down on the number of cards you’re making payments on, but this method prioritizes the debt that is actually costing you the most money.
2. Get a side gig
If you look into your income and expenses and realize your cash flow is negative, a side gig could be the right move. There are plenty of people who are digging into a deeper hole of debt without realizing it. If you’re one of them, you might be stuck in a situation that doesn’t allow you to eliminate costs quickly.
Freelancing on the side, whether driving, writing, tutoring, or providing other skills as service, can help you make up the gap in your cash flow until you can adjust your lifestyle accordingly.
3. Personal loan
If you know paying back your debts is going to be a long-term game, paying high interest the entire time can hurt. Explore your options to consolidate your debt through a personal loan, and you may be able to reduce your interest rate across your debts and save you lots of money.
It might not feel like it when you are still looking at a mountain of debt, but reducing interest rates can put thousands of dollars back in your pocket, depending on how much debt you start with. Just read the fine print carefully, and be sure to work with a trustworthy lender. Personal loans can have variable interest rates that could make your situation worse if you aren’t cautious.
4. Consolidate debt at 0%
Next is a short-term strategy. Many credit cards offer a zero percent introductory rate for balance transfers. This can be a valuable way to reduce the amount of interest you will pay on your debt, but it can also lull you into a false sense of comfort.
Each introductory rate has a set length. Most will expire in 12 to 24 months. Unless you are positive you can and will pay off the card within that time, this is not the method for you. You already need to pay a transfer fee, and you will incur a higher interest rate when the introductory rate expires. The only way this works is if you pay your card off in time.
Each method of paying off your debt will have its advantages. The question of which one to choose depends entirely on your financial situation. Taking account of your income and expenses will lead you to the right answer.
Do you have additional recommendations to add to this list of the best ways to get out of credit card debt?
*This post has been updated from a previously published version.