If you’re staring at a stack of bills and wondering how you’ll pay down credit card debt this year, you’re not alone. Credit card balances increased by $50 billion to $1.13 trillion in the fourth quarter of 2024, and credit card delinquencies increased across all age groups, according to data releases by the Federal Reserve Bank of New York.
You don’t have to let debt get you down, though. Financial counselors recommend being honest with yourself about your situation, and then looking for ways to pay down your credit card debt quickly.
“A lot of people, when they go into debt, they’re just frozen. They’re not even able to look at it,” said Elana Feinsmith, a certified financial therapist, certified financial planner and money coach at Oakfinancialcoaching.com. “The first goal should be to stop and look at where you are right now, without any judgment.”
And while not doing anything could be the biggest mistake when it comes to paying off credit card debt, there are other pitfalls that can slow you down — fortunately, we’re here to help you avoid some of the most common mistakes.
How to avoid 10 common mistakes when paying off credit card debt
Whether you’re trying to pay off last year’s holiday gifts or many years of accumulated expenses, it’s easy to make costly mistakes when tackling your credit card debt. Here’s how to avoid 10 common pitfalls.
1. Read your credit card statements
It might be scary, especially if you’ve never figured out exactly how much credit card debt you have. But it’s important to understand how much you owe and how much it will take to pay off your debt. Start by checking out the minimum monthly payment — the CARD Act of 2009 requires every credit card company to include that amount along with how long it would take you to pay off your balance if you paid only the minimum amount.
“If you don’t want to be paying off last Christmas for three years, you’re going to have to make more than that [minimum] payment,” said Kate Mielitz, an accredited financial counselor and AFC® Program Manager for Beyond Finance.
If you prefer to calculate how much you need to pay to get rid of debt, you can use a credit card payoff calculator, like the one on CNET sister site Bankrate, to enter how many months you want to take to pay off your debt.
2. Make a plan
You know how when someone tells you that their New Year’s Resolution is “I’m going to get in shape this year,” you kind of suspect they won’t? The same goes for your plan to pay off your credit card debt. You need a solid, goal-oriented plan — aka, a budget.
Budgeting doesn’t mean you have to cut everything you enjoy, but it does mean tracking every dollar while you’re paying off debt.
“You need to have a plan for every dollar that you have in income,” Mielitz said. “It could be for rent or mortgage, to put gas in your car, for insurance, for dining out, for having fun, for debt. If you’ve got some money left over and it doesn’t have a job, don’t just let it float. Assign it a job.”
A lot of times the best job for unallocated funds is paying down your credit card debt.
3. Consider applying for a balance transfer card
If you’ve maintained a high credit score, you may qualify for a balance transfer credit card. But be aware that you’ll need to use the balance transfer card for one purpose — paying off your debt — and avoid using your old cards to run up a balance again.
“If you do a balance transfer to another card, cut up those old cards,” Mielitz suggested. But don’t close those old accounts. The unused credit lines can help lower your credit utilization ratio and the older accounts can contribute to the length of your credit history, two factors that can boost your credit score.
4. Contact your credit card company
There’s no harm in asking for help, especially if it means you can pay off your credit cards faster.
“If you’re trying to dig yourself out of debt, there’s nothing wrong with calling the credit card companies and asking for a promotional interest rate,” Mielitz suggested.
If you can reduce the interest rate without opening another credit card, it won’t affect your credit score but may help you pay off your credit card balance faster.
5. Consider consolidating debt with a personal loan
A personal loan stands as another option to pay off high-interest debt. Many people like the convenience of a single monthly payment, and consolidating high-interest debt into one loan with a lower interest rate could reduce your monthly payment and save you a lot of money in the long run. But understand the payment terms, interest rate and associated fees to determine if you’ll actually save money.
Some people assume that if they can’t qualify for a balance transfer card they shouldn’t bother applying for a personal loan, either. But that’s not always the case. Many lenders let you find out if you pre-qualify for a debt consolidation loan with no effect on your credit score. Remember that pre-qualifying isn’t a guarantee you’ll be approved, but it will at least give you a better idea if you can get the loan.
6. Commit to a spending freeze
If you’re trying to pay down debt but continue spending on your cards, the balance on your cards is unlikely to ever go down as the new purchases accrue interest.
A temporary “no spend” plan could be the solution, according to Jeff Rose, founder of GoodFinancialCents.com. You should continue paying for your essentials, but you might be surprised how much money you can free up if you don’t dine out or buy any non-essentials for a month or two.
“It’s not a long-term solution,” Rose said. “Recognize that it’s going to be uncomfortable for the next several weeks. It takes commitment to reach your goal.”
7. Use credit card rewards to reduce your balance
If you’re paying off credit card debt while earning rewards for travel, you’re likely wiping out any benefits you’re earning with the interest you’re accruing. Redeeming your credit card rewards as a statement credit can be more helpful.
“We often use credit card points for things we want in the future,” Mielitz said. “But if you carry a balance on the card, the best use of those points is to pay down your balance.”
You’ll still need to make your minimum monthly payment, but rewards can help reduce your balance.
8. Don’t waste bonuses, refunds and windfalls
Tax day is right around the corner — are you getting a refund? Paying down your debt could be a good use of your windfall. But don’t stop there.
“If you have debt, make a promise to yourself that you’ll put a large percentage of any new money that comes in toward that debt,” Feinsmith said.
One way you might not realize you’re getting extra money: If you get paid weekly on Fridays, you’ll technically get a fifth paycheck in March, May, August and November 2024. Consider setting up an automatic payment for your credit card when the extra payment hits your bank account — before you have time to think about using it for something else. Do the same for other windfalls, like bonuses and gifts.
“If you find extra money, don’t automatically feel that it’s meant to be spent,” Feinsmith said.
9. Get a temporary side gig
We get it — you work hard enough, you don’t need another job. But today’s gig economy offers many opportunities to earn extra money, and not all of them have to take up a large chunk of time. Feinsmith suggested driving for DoorDash or babysitting to earn extra cash and dedicating a certain percentage of that money toward paying down your debt.
To stay motivated, think of each payment as paying yourself, she said. “Each time you pay down some of that debt, you’re also paying yourself by saving money on interest.”
10. Create a debt repayment plan
Whatever steps you decide to take to generate more income and/or reduce your monthly credit card payments, consider using one of these debt repayment plans to help you focus your efforts:
- Debt snowball focuses on paying off the credit card with the smallest balance first. You’ll make minimum payments on the rest of your cards, then when the first card is paid off, put all that money toward the next card, and so on. “Psychologically, that snowball tends to make the most sense because we can see progress faster,” Mielitz said.
- Debt avalanche focuses on paying off the card with the highest interest rate first to help you save the most on interest. “Avalanche works particularly well if you’ve got comparable balances on all the accounts,” Mielitz said.
If you’d like to feel a sense of accomplishment but are facing larger balances, Feinsmith recommends setting incremental goals. That way, you can still celebrate financial victories, like paying off 20% of a card with a high balance. “Feeling successful is really important,” she said, “even if you can’t pay off a card all at once.”
Set yourself up for financial success
Paying off debt is important, but it’s just as important to shift the mindset that got you into debt in the first place, experts agreed. Mindful spending can help you establish good habits that will last all year.
Most importantly, don’t chide yourself for past mistakes. “Be compassionate with yourself,” Feinsmith said. “You deserve to have money, so working through your debt will only help you get to a better place.”
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