How to Face Facts, Save Money and Get that Balance Paid

Understanding Credit Card Debt & How to Pay It Off

Contributions by 3 experts

Updated: March 19, 2024

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Ever looked at your ballooning credit card debt and wondered: how did this happen? This page will help you get rid of that debt. We'll show you the common pay-down strategies and offer some fresh ideas for taking control of your finances.

What Happens When You Don't Pay Credit Card Debt: A Timeline


Credit score takes a hit

Bank (A.K.A. creditor) hits you with late fees

Bank calls you seeking payment


Bank calls seeking payment

Credit score takes a bigger hit

Late fees


Bank may sell your debt to a collection agency (CRA); your credit score takes another hit

More than 90 DAYS LATE

Bank holds onto your debt but freezes your accounts and may pass your account to a collection agency; may sue you if you don't pay

Collection agency calls you constantly seeking payment; may sue you eventually if you don't pay

If you don't pay your debt for six months, the Federal Trade Commission notes that your creditor will write your debt off as a loss, but you still owe the money.

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Every time your credit score takes a hit, that's a black mark on there for seven years. Although their impact lessens over time, these hits to your credit might prevent you from renting an apartment, opening a new line of credit or getting a mortgage loan down the road.

What's Wrong with Having a Little Debt?

You may not have given much thought to charging that weekend trip to your credit card. But if you knew you'd still be paying for the adventure months or even years later, you might have paused before sliding that plastic. For many people, simple purchases like this are the beginning of a series of missteps that can lead to mounting debt. Here are some common pitfalls:

The Minimum Payment Mistake

Of course, everyone knows the importance of paying at least the minimum amount due on the credit card each month in order to avoid costly late fees and potential interest rate hikes. But many people mistakenly believe that as long as they are paying the minimum due, they are on the right track. In fact, by sticking to the minimum payment, you are ensuring huge earnings for credit card companies and huge losses for yourself. Take this example:

Let's say you spent your honeymoon in Greece and charged $6,500 on your credit card. If your interest rate is 13 percent and you only pay the minimum payment (about $130) each month, it would take you close to 30 years to pay it off, and you will have paid $7,315 in interest, more than doubling the cost of your honeymoon. That's why paying at least twice the minimum payment is conventional wisdom. If you doubled your minimum payments, in this case, you'd be rid of the debt in less than 12 years, and you would pay about $5,000 less in interest.

The Debt Shame Spiral

Many people get caught in a downward spiral after letting their debt grow or missing a payment or two."There's a lot of shame associated with debt," explains financial psychologist Brad Klontz, Psy.D., CFP. "This leads people to either put their head in the sand or to feel intense anxiety or depression, feeling crushed by the debt. Neither of those responses is healthy."


Paul Golden, a spokesperson for the National Endowment for Financial Education (NEFE), highlights ten warning signs that you may have too much debt. If you answer yes to one or more of these questions, he says, it's time to take serious action:

  1. Spending 20 percent or more of your paycheck to pay off car loans, credit cards, or other debt.
  2. Borrowing to pay off other debts.
  3. Not knowing how much money you owe.
  4. Making only minimum payments on each bill.
  5. Missing payments, or paying bills late every month.
  6. Getting calls from creditors.
  7. Being refused extended credit or additional credit.
  8. Borrowing from retirement accounts or using credit cards to pay other monthly bills.
  9. Writing postdated checks.

Get a Debt Pay-down Strategy

You may have attempted one or another of these common paydown methods over the years, but if you're like many people, you may not have stuck with the plan. The number one thing to bear in mind when choosing a strategy is to find one that will keep you engaged.

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    Avalanche (or Ladder) Method

    Greatest Rewards: Pay less over time

    The debt avalanche method—sometimes called the debt ladder— focuses on interest rates. You pay off the balance of your credit card debt by tackling the debt with the highest interest rate first, then the debt with the second-highest interest rate, and so on. From a purely financial perspective, this strategy is the most efficient way to pay off your debt quickly while paying the least in interest.

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    Snowball Method

    Quickest Rewards: Pay down easy-to-handle debt sooner

    The debt snowball method is also relatively simple, but counterintuitive: you pay off the smallest debt first, then the second smallest, and so on. Like rolling a snowball that gets larger as it rolls, the consumer begins by paying a small debt, gradually working up to the bigger-sized undertaking, empowered by momentum. Inertia is the enemy of progress, so this method may work for folks who've been stuck and might benefit emotionally from being on a roll -so to speak. In fact, researchers at the Harvard Business Review determined that the snowball method was most effective in eliminating debt balances.

Dr. Klontz is a fan of the snowball method. "You get some early success and you get that sense of pride, joy, and empowerment," he says. "That's why I think it's a much more effective strategy. I think the nuts and bolts financial advice is useless for 8 out of 10 people. They already know they should save for the future and get out of debt. We know what we should be doing, the question is how."

Many financial experts will tell you the avalanche method is the smartest strategy because you will end up paying less over time if you take care of your highest interest debts first. But there is a lot of psychology involved in paying off debt, and many other experts say the snowball method is more likely to motivate people to continue the hard work that needs to be done. Bottom line: Either method can work if you stick with it.

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Personal finance is 80 percent behavior and 20 percent head knowledge. The debt snowball is designed with behavior change in mind. When you see your smallest debt disappear you get immediate, positive feedback—momentum that encourages you to keep going. Interest rates are about math, but if we were doing math, we wouldn't have debt!

Motivation is more important than math. We've helped millions of people list their debts smallest to largest, make minimum payments on everything but the smallest one and attack that one with intensity. It isn't complicated, but it is difficult. Motivation helps fire people up.

Stop Spending Too Much

You may have credit card debt from unexpected medical bills or a sudden job loss. But many people can trace their ballooning credit card debt to an ongoing pattern of spending more than they make. If you find yourself regularly spending beyond your means, it's time to assess why and come up with a plan.

If regular overspending is your problem, try these tips to get back on track:

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    Create a budget

    "Start by creating a get-out-of-debt plan," advises Paul Golden, spokesperson for the National Endowment for Financial Education (NEFE). By writing down all your income and expenses, you'll be able to see problem areas. Can you cover your basic housing, food, health care, insurance and education expenses with your current income? A budget can help you to see where you can cut back, or it may convince you of the need to supplement your income. You can start with this timeless budget worksheet from the Federal Trade Commission.

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    Put credit cards on lockdown

    One way to avoid using the credit card is to cut it up, but you may sleep better at night knowing you have it in the case of an emergency. "If overspending is an issue, stop using credit cards immediately," advises Golden. "Do not carry them with you so you don't turn to them in impulsive situations. Keep them at home in a lock box." For any credit cards that you keep, Golden suggests lowering the limits.

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    Work with your creditor on a payment plan

    If you are having trouble paying your credit card bills, contact your creditors directly. "It's reasonable to reach out to your creditors to establish a payment plan with them," says Golden. "Call them and discuss your situation. Can you agree on a payment plan that will allow you to pay off your debts in a reasonable amount of time without feeling overburdened by interest charges?" Do not wait until they have turned your account over to the bill collector, warns the FTC. By then it is usually too late.

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    Transfer your debt to a zero-interest card

    and pay it off before the rate goes up. If you have managed to pay the minimum due on your credit cards and are not already being hounded by debt collectors, you may be able to secure a zero-interest balance transfer card and transfer your existing high-interest debt to it. But beware: The zero percent interest rate will only last for a limited time before jumping up to market rates. To make this strategy work for you, develop a budget and payment plan that will get the debt down to zero before the interest rate jumps up. Also, avoid buying anything on this card. Usually, new purchases will be charged a higher interest rate. Find MoneyGeek tips on how to maximize the benefit of a balance transfer card here.

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    Stick to cash or, when necessary, a debit card

    for all your purchases. Promise yourself that you won't use your credit card again until it is paid in full. This should help keep your debt and your spending down. People tend to spend more when they use plastic than when they pay in cash.

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    Opt out of credit card offers

    If you are buried in debt and don't trust yourself to resist new credit card offers, Golden recommends you opt out of receiving them. "Call 888-5OPT-OUT (888-567-8688) or go online to stop offers from coming in." This will last for five years.

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    Set a target date for being debt-free

    This may be the date the interest shoots up on your zero-interest credit card or the day of your wedding. The sooner the better, but be realistic in setting your target.

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So if I go $10,000 into debt on this credit card, I'll earn enough miles to buy a $500 airplane ticket? Where do I sign? Seriously, the problem is people spend more using plastic than cash. Studies show it's about 12 to 18 percent more, and the credit card companies know this. Impulse purchases are the best examples. When vending machines began accepting credit cards, they saw gains of 178 percent. McDonald's saw sales increase by 48 percent. An MIT study using MRIs actually shows that the pain centers of the brain activate when a person pays with cash. Not so when they used plastic.

Special Cautions for College Students

College students are often short on funds, and credit card companies have been very willing to step in to fill the gap. These credit cards typically have high APRs, and students regularly find themselves unable to pay their debts. Under the CARD Act of 2009, creditors are not allowed to issue cards to people under age 21 unless they have adult co-signers on the accounts or can show proof that they have enough income to repay the debt. It's also now illegal for credit card companies to be within 1,000 feet of a college campus offering complimentary pizza or gifts to rope students into applying for credit cards. Still, there are plenty of 21-year-old college students who have managed to rack up considerable debt by graduation.

If you are a college student, you may want a credit card for emergencies. But follow these tips to avoid graduating with substantial credit card debt:

  • Stick to cash or a debit card except for emergencies
  • If you do get a credit card, look for one with a low interest rate and APR
  • Enroll in a financial literacy class. Lots of colleges offer them for free, or you can try an online program called CashCourse, sponsored by the National Endowment for Financial Education.
  • Don't overspend: create a monthly budget and stick to it. If your expenses outweigh your income, consider getting a part-time job
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Don't have a credit card, ever. With every swipe, the banks steal more and more of a young person's future. People have actually told me they got Junior a credit card to teach responsibility. Credit cards don't teach responsibility. They teach that you can buy something you can't afford, with money you don't have, and hope to pay for it later. The truth is, cash carries more emotional weight than plastic. You feel it when you spend money. So work while you're in school. It won't kill you. In fact, studies show students who work while they're in school have higher GPAs than students who don't.

If you've put yourself on a tight budget and still can't afford to make your minimum payments, it's important to act quickly. The Consumer Financial Protection Bureau recommends you contact your credit card company immediately, explain your situation, what you can afford to pay, and when you think you can restart normal payments. Many credit card companies will be willing to work out a payment plan with you if it appears you will be able to get back on track.

Paying Off Your Debt

It goes without saying that paying off debt requires steady income of some kind. If you're struggling to pay off your debt, you may want to look at ways to increase your income stream, at least for the duration of your debt payoff period. This may mean increasing your hours at work, asking for a raise or even taking on an additional part-time job or a roommate. It's also important to know your rights as a credit card holder.

Here are some common issues that you may face while paying down your debt:

"I don't make enough money to pay more than the minimum balance on my card."

When you are living paycheck to paycheck, it's easy to feel like you won't ever get out from under your debt. But if you take the time to write down all of your expenses, you may be surprised at where you can find some savings. There are lots of budgeting guides and tools online to help you. You can start with these:

  • MoneyGeek's Easy Guide to Budgeting
    This guide explains the basics of budgeting and the many different ways you can approach the task. Download the budget worksheet straight to your computer for free.

  • NFCC's online budget worksheet
    This simple tool allows you to itemize all your income and expenses and get a snapshot of your financial situation.

"I can't keep track of all of my payment due dates—on top of student and auto loans, my credit card payment(s) are just one more thing to remember."

For the organizationally challenged, having multiple dates to pay your debts can be brutal. The good news? Technological advances mean you no longer have to sweat it out over a spreadsheet each night. You can start by using your cell phone's calendar and alarm to remind you when to pay bills. If you want more help than that, there are lots of free apps that can help you get organized:

If you don't want to enter your personal information online and prefer the pen and paper method, you can find free templates online to print out for keeping track of your bills manually.

"I've tried self-discipline and it's not working. I'm ready to hire a credit counselor, but don't know where to start."

If you've tried all the self-help strategies and still find yourself falling further and further behind, it may be time to talk to a pro. Lots of companies promise to help people climb out of debt, but not all of them are really committed to their clients' best interests. Be sure to check any agency closely before signing up and stay clear of companies that promise a quick fix. There's no easy way out of debt. It will take discipline and perseverance.

Credit counseling

Credit counselors can help you develop a budget and manage your debt. They usually look at your whole financial situation and work with you to develop a long-term plan to get you back on track. Look for a reputable non-profit agency, and check with your state's Attorney General or your local consumer protection agency to see if complaints have been filed against them. You can search the Department of Justice's list of approved credit counseling agencies here. Remember, just because it's non-profit does not mean it won't charge fees. Many agencies charge hundreds of dollars upfront and then additional monthly fees, so do your homework before signing up. If a counseling agency won't send you free information about its services without requiring details about your case, the Federal Trade Commission suggests you find another agency.

Debt consolidation

If you have multiple credit cards with different rates, limits, and due dates, it can get overwhelming. Often a credit-counseling agency will consolidate your debts for you. By consolidating your credit card debts to one loan, you may make it easier to keep track of payments, and you may be able to lower your interest rate, but your debt principal doesn't change.

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There's a reason "con" appears in debt CONsolidation because that's what it is. These services sound great, but they only treat the symptom and not the problem. Debt is never really the problem. The problem is behavior - overspending and not having a budget. When you're in a situation like this where debt is piling up, you've got to get mad. You got to roll up your sleeves and do the work, there's no magic get-out-of-debt pill. Debt CONsolidation only moves the debt around. It doesn't solve the problem.

Debt settlement

A debt settlement company may offer to negotiate with your creditors to reduce your debt and offer lower monthly payments, but they can also be costly and risky, according to the Consumer Finance Protection Bureau. The credit card companies are not obligated to negotiate a settlement, so you may end up paying significant fees without making any progress. Debt settlement companies often encourage you to stop making payments on your credit card debt while they seek to negotiate a settlement, but FTC warns that this could negatively impact your credit score and lead to lawsuits or debt collectors knocking on your door.

If you decide to enter a debt settlement plan, the Consumer Finance Protection Bureau offers these tips to protect yourself:

  • Don't stop making payments to your creditors and don't make your first payment to the agency until you have confirmed with your creditors that they approve the settlement plan, which could include a monthly plan or a one-time payment.
  • Don't sign up for a plan if the monthly payment is more than you can handle.
  • Make sure your statements reflect any reduced interest rates or fees.
  • Verify that the settlement agency is paying your debts on time.


If all else fails, you may have to consider filing bankruptcy. Bankruptcy can help you start fresh, wiping out your credit card debt and protecting your assets from creditors. But it comes at a steep price - your credit score will take a big hit and the filing will remain on your record for up to ten years. If you decide to go this route, be sure to hire an experienced bankruptcy attorney to represent you. Ask for a referral from friends or family members, check with your local Bar Association, or click on the link below for the National Association of Consumer Bankruptcy Attorneys.


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