How to get out of credit card debt

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In a Nutshell

When you're trying to get out of credit card debt, a mix of planning and perseverance can help you reach that goal.

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Just as it takes time and determination to climb a mountain, it takes time and determination to conquer a mountain of debt.

But if you’re equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you don’t have to tackle that mountain of debt alone — credit counselors are available to help.

Beverly Harzog, credit card expert and author of “The Debt Escape Plan,” says that in paying off more than $20,000 of her own credit card debt, she learned that it takes persistence, self-discipline and “a darned good budget” to get rid of that financial burden.

Of course, keep in mind that no two attempts to conquer debt are the same. A debt reduction plan that works for one person may not work for another. And unless you stick to your plan, you’ll likely have a tough time chipping away at your debt.

“There is more than one path to success, so it’s important to know that options are always available when a plan doesn’t work as expected,” says Bruce McClary, vice president of public relations and communications at the National Foundation for Credit Counseling, a nonprofit financial counseling organization.

What follows is advice on how to get out of credit card debt. Do keep in mind that this advice won’t guarantee success, but it can help point you in the right direction.

How to get out of credit card debt

1. Evaluate your finances
2. Prioritize your spending
3. Create a budget
4. Free up money
5. Set a strategy
6. Seek help (if you need it)
7. Work on your financial habits

1. Evaluate your finances

Regina Blackwell, a certified budget counselor at Transformance, a nonprofit credit counseling service, says your first step should be to assess your financial situation.

Create a list of everything you owe, including credit card debt and all other monthly bills, she suggests. This review of your overall debt should include the balance and the annual percentage rate (APR) — the price you’re charged to borrow money — for each credit card.

Looking at each card’s APR will help you decide how to approach reducing your debt. In some cases, you might want to tackle higher-interest debt first to save money on interest charges; in other cases, you might want to give yourself a psychological edge by paying off lower-balance cards first.

What's the average APR on a credit card?

Next, compare your debt and expenses with your income. In examining your debt and expenses, you should consider items such as rent or mortgage debt, credit card balances, loan debt and grocery bills.

As for your income, take into account your salary, the interest earned on your savings and anything else that generates money.

2. Prioritize your spending

When mapping out how to get rid of credit card debt, be sure to cover the basics first, says Sean Fox, co-president and CRO of Freedom Financial Network, a financial services company that specializes in debt settlement. Those basics include food, housing and clothing.

Then, Fox says, be sure to pay at least the minimum amount on secured debts. This type of debt is secured by an asset (sometimes referred to as “collateral”) such as a car or home. If you fail to make timely payments on secured debt, you could lose the asset that’s backing the loan, he warns.

Next, tackle your credit card debt. Credit Karma’s Debt Repayment Calculator is a great way to get started on this task and stay on track. Just enter in the balance you owe and the interest rate, then enter your expected monthly payment or desired payoff timeframe to get an idea of how long it will take to tackle that debt.

Also, focus on student loan debt, Fox says. Why? Because the federal government, which backs most student loan debt, has the means to punish you financially if you have defaulted on the repayment of a student loan. For instance, the government can garnish your wages, your tax refunds and your Social Security benefits. If you have a private student loan, the lender can’t go after your wages or Social Security benefits, but they can pursue legal action in court to collect student loan debt.

Consider not using your credit cards while you’re working on cutting your debt. Paying for things with cash or a debit card can ensure that you don’t rack up debt as you’re trying to pay it off, which can be a frustrating and deflating experience.

Most crucially, make sure you’re making the necessary minimum payments at least on all of your outstanding debts.

Balance transfer cards: One way to help pay off debt

Rather than pay interest on your credit card debt, you may be able to transfer high-interest debt to a single credit card with a balance transfer.

Learn how to do a balance transfer in 6 steps

A number of balance transfer cards allow you to pay 0% interest on your balance for a set amount of time, so you can pay more money toward your principal and reduce how long it will take to pay off your debt.

If you’re looking for a balance transfer card that offers everyday rewards, you might want to consider The Amex EveryDay® Credit Card from American Express. You can earn two points per $1 spent on purchases at U.S. supermarkets (on up to $6,000 per year in purchases, then one point per $1 after that).

It also comes with 0% intro APR on balance transfers requested in the first 60 days of account opening for 15 months. (After the 15 months, the variable APR for balance transfers and purchases jumps to 15.24% to 26.24%.) There’s no balance transfer fee.

3. Create a budget

Once you’ve prioritized your debts, it’s time to establish a budget. A budget will help you track your spending and get a better handle on how to shrink your credit card debt.

“Stick to your new budget like glue,” advises Blackwell. Online tools such as Mint and YNAB (You Need a Budget) can be useful in setting a budget and making sure you don’t stray too far from it each month.

Fox says creating a budget will guide your decision about what strategy to use for reducing your credit card debt. “Be honest with yourself about your obligations,” Blackwell adds. (Later, we’ll explain in detail how to pick the right strategy.)

Once you’ve done your preliminary homework, double-check whether the agencies you’re considering are trustworthy by contacting the attorney general’s office in your state or by reaching out to your local consumer protection agency.

7. Work on your financial habits

If you don’t alter the behavior that got you into credit card debt in the first place, you might slip back into debt again in the future.

Fox stresses the importance of differentiating between “wants” and “needs.” Do you need food and housing? Definitely. Do you need to pay your bills and set up an emergency fund? Most likely. Fox says these “needs” should take precedence over “wants.”

He also stresses the need to stick to the budget you’ve created. If you’re not keeping close track of your income and spending, you may wind up in debt all over again.

“Staying out of debt isn’t a big mystery,” Blackwell adds. “Account for your money. Live within your means. Don’t spend what you don’t have. After becoming debt-free, apply the lessons you’ve learned and work toward the establishment of healthy financial habits.”

Bottom line

Getting out of credit card debt usually doesn’t happen immediately. If it took you a while to rack up the debt, it may take you a while to eliminate it.

“The most important thing to keep in mind is consistency in making payments on time every month,” Blackwell says.

“Hopefully, once your credit cards are fully paid off, you’ll swear never to go back to the behaviors that led to being in debt.”