8 Ways to Manage and Pay Off Credit Card Debt

America is finding it harder than ever to pay off credit card debt.

Total credit card debt is $1.115 trillion in 2024, according to the Federal Reserve. That’s up $129 billion in a year’s time.

The average American is carrying $6,218 in credit card debt, and the average credit card interest rate has soared to 22.63%, says the Fed. That’s the highest since they began tracking annual percentage rates in 1994.

“Many consumers have used credit cards to help manage their budgets, leading to record- or near-record high balances,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in the

That’s the bad news. The good news is that all of the bad news doesn’t have to drive you crazy or into the poor house. Here’s what you need to know.

The Importance of Paying Off Credit Card Debt

Carrying a hefty monthly balance damages your credit because 30% of your credit score is based on credit utilization. Ideally, you won’t rack up charges of more than 30% of your credit.

So, if your total credit card limit is $10,000, your total balance should not exceed $3,000. If it’s higher than 30%, it indicates to potential lenders that you’re having trouble managing your financial responsibilities. You’ll risk being turned down for a loan or paying higher interest rates if you do get one.

So, how do you increase your credit score? Paying your bills on time and lowering your debt burden are the two best solutions, but there are more ways to eliminate debt and enjoy the benefits of having a good credit score.

8 Tips to Manage and Reduce Credit Card Debt

Eliminating credit card debt depends on three things: spending habits, saving habits and determination. That last one will make the following steps more manageable.

1. Continue to Pay Your Credit Card Bills on Time

Paying on time means no late fees and other charges. Paying the entire balance on time means you won’t be socked with exorbitant interest charges.

The fine print in your credit card agreement gives the issuer a lot of ammunition to make your life miserable if you’re late on a payment. That will eventually show up on your credit reports at the three major credit bureaus (TransAmerica, Equifax and Experian).

2. Practice Responsible Spending

Learn to live within your means and look for ways to cut your expenses.

• Use credit wisely: If you’re thinking about charging something you can’t pay off in three months, think again.
• Develop a realistic budget and stick to it: Write down your monthly income and expenses, then track your spending. Better yet, download one of the many budgeting apps that make keeping up with your budget easy.
• Avoid impulse buying: Stick to your shopping list. Leave your credit card at home and carry only the amount of cash you’ve budgeted for your shopping trip.
• Tighten your extravagances: Make coffee at home and skip that $5.29 Blond Espresso Roast at Starbucks. Don’t let magazine covers, popup ads, shop windows or the Kardashians trigger your fashion spending impulse.
• Examine your bills: See if you can cut back on cable, internet, and streaming platforms. Review your insurance policies for possible savings.
• Look for grocery deals: Wait for sales and use coupons. Consider buying less expensive store brands. They’re often as good as the name-brand products.
• Take care of your possessions: Proper maintenance extends the life of things you rely on and helps you avoid big-dollar repair bills.

3. Choose a Credit Card Payment Strategy

If you’re serious about paying off credit cards, it means making more than the minimum monthly payment. There are three proven methods to do that.

• Debt Snowball: This involves paying off the card with the lowest interest rate first. That motivates you to pay off the next-lowest, then the next, and it snowballs until you’ve paid off all your debt.
• Debt Avalanche: This is the opposite approach. Attack the card with the highest interest rate first. Work down from there. It makes more mathematical sense than the snowball, but it lacks the quick gratification that some consumers need.
• Automating Your Payments: It’s a simple way to stay current on your bills, thus avoiding penalty interest, late fees and bad reports to credit monitors. Just keep a close watch on your bank balance. Overdraft fees can be worse than late penalties.

4. Make Sure You Have an Emergency Fund

Life happens. People get laid off, cars break down, kids need stitches, the air conditioning unit goes on the fritz. They aren’t regular expenses, but unexpected bills always seem to always pop up.

To be prepared, try to build an emergency fund. Ideally, it should equal six months of expenses, in case you find yourself out of work. That will keep you from having to slap down that expense on your credit card.

5. Pay More Than Your Minimum Payment

Credit card companies love it when customers pay the lowest amount required to avoid late fees. It barely reduces the overall balance and the interest charge. You’ll do yourself a huge financial favor by paying as much as you can every month.

A good approach is to target specific purchases on your bill. Camping equipment from Dick’s Sporting Goods. The lawn mower from Home Depot. The new computer from Best Buy.

Whatever the item, research shows consumers pay 15% more when they scan their statements and choose specific purchases to repay.

6. Consolidate or Transfer Your Credit Card Debt

Consider rolling all your high-interest bills into one with a lower overall interest rate through a debt consolidation program.

Consolidating with a low-interest personal loan from a bank, credit union or credible peer-to-peer source will lower your credit card bill and help you manage multiple card payments.

You could also take advantage of balance-transfer cards. Get a credit card with an extremely low (probably zero) introductory rate, then transfer the balances from your other cards to the new one.

But be aware, there’s usually a transfer fee of 3%-5%. And pay off the bill before the introductory rate expires (usually 12-21 months), or you’ll get hammered by the inflated regular interest rate.

7. Work With Creditors to Lower Your Interest Rate

Does the following describe you?

• You’re well-established with your credit card issuer(s).
• Your payments are always on time.
• You don’t go over your credit limit.

If all that’s true, contact your card issuers and ask them to lower your interest rates. They want to keep you as a customer so they might just do it.

8. Increase Your Income

Captain Obvious says the more money you make, the more money you’ll have to pay off your debts. There are plenty of side jobs that will conjure up more cash.

• Get a second job.
• Ask for a raise.
• Take on more hours at work.
• Look for temporary or odd jobs (handyman, babysitting, yard work) on job boards.
• Sell personal belongings you no longer use or need.
• Make a side business out of something you’re good at.

Credit Card Terms to Know

If you’re going to master your credit card debt, you need to understand credit card language. Here’s the lingo.

• Annual Fee: Issuers charge a yearly fee for the privilege of using their cards. It’s sometimes called a “membership” or “participation” fee.
• Annual Percentage Rate (APR): The yearly interest rate, including costs and fees paid to make the loan. The calculation equals the periodic rate multiplied by the number of billing periods. Separate APRs may be shown for balance transfers, cash advances and other bonus offers.
• Average Daily Balance: Calculated by adding each day’s balance and dividing it by the total number of days in the billing cycle. The result is multiplied by the card’s monthly rate.
• Balance Transfer: Shifting an unpaid balance from one credit card to another.
• Credit Limit: The maximum amount you’re allowed to borrow on your card. Some issuers block excess charges, while others charge over-the-limit fees.
• Finance Charge: The charge for using a credit card and carrying a balance.
• Grace Period: The interest-free period allowed between the date of the purchase and the billing date for zero-interest cardholders. Not all card issuers offer it.
• Late Fee: The fee charged for missed payments.
• Minimum Payment: The smallest amount you must pay on time, usually 2% of the total balance.
• Over-Limit Fee: The fee charged for exceeding your spending limit.

Should You Close Your Credit Card After Paying It Off?

If you pay off your card, you might want to chop it into little pieces and toss them in the air while doing a victory dance. Resist that urge.

Canceling your card will lower your credit utilization ratio, which makes up 30% of your credit score. A credit card is also handy in an emergency when you don’t have cash.

You have to use them occasionally to keep the accounts active. So, buy something cheap and pay it off immediately. If you don’t want to pay the annual fee, switch to a card with no fee.

» Learn More: Can You Close a Credit Card With a Balance?

Get Help Managing Credit Card Debt

Getting into debt is often a one-person job. Getting out might require help.

If you need some help, contact a nonprofit agency for a credit counseling session. A certified counselor will evaluate your situation and devise a strategy that could get you out of credit card prison.

It could be through a debt management plan. Counselors work with your creditors to lower interest rates and monthly payments. You make one monthly payment to the nonprofit, and it’s lower than the combination of your current payments.

Inflation might slow down, but it’s not going to go away. Keep in mind that you can still pay off your debts with planning and determination. That beats just shaking your fist at the sky.

» Learn More: How to Pay Off $40,000 in Credit Card Debt