How to Eliminate Credit Card Debt Faster

1. Minimum payments don’t work to get you out of debt

Credit card companies are not evil, but as businesses, they exist to make a profit. They extend a line of credit for you to use and interest charges are the cost of that convenience. That’s how your creditors make revenue, so they’re fine if you stay in debt forever.

Minimum payment schedules are not efficient methods of debt repayment. You only pay a small percentage of your balance – usually around 2-3 percent. While they can feel like safety nets, they’re designed to keep you in debt longer. To illustrate just how slow progress can be, let’s look at the numbers. Our  minimum payment calculator allows you to compare the impact of making only minimum payments versus paying more. You might be surprised by how much longer it takes to become debt-free when only making minimum payments.

2. High APR eats up over half of every payment

Interest charges are a big part of the reason you can’t pay off your cards and other balances. If you make minimum payments at 15% APR, you’re losing roughly half your payment to interest. At 20%, it’s even worse – two-thirds of your payment goes straight to the credit card company, not your balance. 

To illustrate the impact of high APRs, let’s compare two scenarios:

Scenario 1: 15% APR

• $5,000 Balance
• $200 Minimum Payment
• Approx. $62.50 Interest Payment
• Approx. $137.50 Principal Reduction

Scenario 2: 20% APR

• $5,000 Balance
• $200 Minimum Payment
• Approx. $83.33 Interest Payment
• Approx. $116.67 Principal Reduction

As you can see, a mere 5% increase in APR results in a substantial difference in how much of your payment actually reduces your debt. This difference compounds over time, significantly extending your debt repayment journey.

3. Even with more money, debt elimination can be slow

When minimum payments don’t work, you can try paying more. This usually involves implementing a debt reduction plan. You determine how much you can afford to pay and set that as a fixed amount that you pay each month. Two popular debt reduction strategies are the snowball method and the avalanche method.

• The Snowball Method: This method focuses on paying off your smallest balance first, regardless of interest rate. You gain quick wins, which can be highly motivating.
• The Avalanche Method: This method prioritizes paying off the debt with the highest interest rate first, minimizing the total amount of interest you’ll pay over time.

Before trying these strategies, review your budget to see how much money you could allocate for debt elimination. Then you can use the calculator below to determine how quickly you could pay off your balances utilizing each strategy.

Even if you cut your budget down to just necessities, it can take a long time to reduce your debt using this method if your balances are high. If you’re not making the progress you want, then it’s time to find a better way to eliminate your balances.

Finding the best way to eliminate credit card debt

There are three basic ways to pay off credit card debt faster without causing credit damage or risking your assets. You can:

1. Use a balance transfer card, paying off the debt as quickly as possible with large interest-free payments
2. Consolidate the debt, using a low-interest rate personal loan to pay off your balances
3. Enroll in a debt management program with the assistance of a credit counseling agency

The right choice depends on your debt, credit, and budget.

Option 1: Balance Transfer Credit Card

This option is best if you have good free cash flow in your budget and a good credit score. You open a new balance transfer credit card at 0% APR. Then you transfer the balances from your existing cards, with a balance transfer fee between 3-5% of the transferred balance.

You have a certain number of months to pay off your debt interest-free. The length of time depends on your credit score and the card issuer; introductory periods typically range from 6 to 18 months.

Option 2: Personal Debt Consolidation Loan

Here you take out a personal loan for debt consolidation. You qualify based on your credit score and choose a term that offers monthly payments that work for your budget.

Most unsecured loans offer terms of 12-60 months. A shorter term will increase the monthly payments but decrease the total interest charges applied to your debt. A longer term will lower the monthly payment but increase your total costs. You want to choose the shortest term you can comfortably afford to pay to get out of debt as quickly as possible.

For this solution to be as beneficial as possible, you generally want an interest rate that’s no higher than 10 percent.

The money from the loan goes to pay off your balances, leaving only the loan to repay at a lower interest rate.

Option 3: Debt Management Program

If you have too much debt to pay off on your own or a low credit score, you may need help reaching debt-free status. In this case, you can contact a credit counseling agency. They will take a look at your finances and go over your debt relief options with you.

If a debt management program (DMP) is right for you, they’ll  help you work out a repayment plan that works for your budget. Then they contact your creditors to negotiate lower interest rates and waive fees. 

A DMP is not a loan or debt consolidation loan; it’s a structured repayment plan facilitated by the credit counseling agency. You’ll make a single monthly payment to the agency, and they’ll distribute the funds to your creditors according to the agreed-upon plan. This simplifies your payments and, with the reduced interest rates, allows you to pay off your debt faster. Importantly, reputable credit counseling agencies are non-profit organizations, and they will explain the difference between their services and those of for-profit debt settlement companies, ensuring you understand the pros and cons of each approach.

Here are a few examples of the results you can see with a debt management program: