5 Powerful Ways to Finally Crush Credit Card Debt

If it feels like you can’t get ahead on your credit card debt, you’re not alone.

Twenty-eight percent of debt-laden people can only make the minimum monthly payments on their accounts, according to a recent survey of 1,800 Americans with at least $10,000 in unsecured debt from Freedom Debt Relief and Money.com.

It’s little surprise many borrowers aren’t able to prioritize debt payoff, given the pressure of high prices for housing, groceries, gas and more. Once you factor in the steep interest rates that credit cards and other unsecured debt often come with, shrinking your balances seems even more challenging. Yet while it is understandable that so many people can only afford to tread water with their debt, it is still very expensive.

“On a typical unsecured balance carrying double-digit interest, most of that payment covers interest first, principal second,” says Jeff Judge, financial advisor and managing partner at Chesapeake Financial Planners. “The debt doesn’t shrink, it just sits there collecting fees.”

Say you have $10,000 in credit card debt with an annual percentage rate (APR) of 21% — a typical rate for credit cards. If your minimum required payment is 2%, your monthly bill would be $200. But if you only pay that amount each month, it will take you 10 years to pay off the card while accruing a total of nearly $14,000 in interest on top of the $10,000 principal.

Every bit you’re able to increase your monthly payment can save you a significant amount of money in the long run. Here are five ways to break the debt cycle.

1. Review your interest rates

You’ll want to pay the minimums due on any debt tied to your home or car. From there, you need to look at the rates on your credit cards as well as any personal loans, buy now, pay later plans and other unsecured debts you have to make a game plan.

“Most people never look,” Judge says. He tells his clients to pull every statement and rank balances by APR, not by size. “Pay the highest rate first regardless of the balance, that’s where the bleeding is worst.”

That strategy of focusing on the highest interest first is called the avalanche method, and it typically entails paying only the minimum on all your debts except for the most expensive one, which is where you’ll shovel any extra cash. It’s the most cost-efficient way to pay down debt. But if you need small wins to stay motivated, you can try the snowball method, which involves paying off the smallest balance first, then moving onto the second-smallest and so on.

2. Call your creditors

Speaking directly to a creditor may work better than you’d assume, since they don’t want to lose your business to a balance transfer credit card or another consolidation method.

Tell them you want to continue paying, and remain current on the loan, but ask what hardship or alternative payment options may be available, says Jon Lapp, a financial planner and founder of Haven Financial Advisors.

“They don’t want you to default either, so they are often willing to work with you,” he adds. The lender may be able to offer you a temporary reduced interest rate or change your loan agreement in another way that could offer you a bit of flexibility.

3. Consider consolidation options

Debt consolidation is a way to replace multiple debts with one single monthly payment that ideally comes with a lower interest rate than what you’ve been paying. It can be especially helpful for people overwhelmed from juggling several accounts, but keep in mind that consolidation and refinance options are typically easier to obtain for people with high income and good credit.

A common option is a balance transfer credit card that has an introductory period of 0% interest. If you go this route, make sure you can pay off the balance before the interest rate jumps, which is typically after less than 18 months. You’ll have to be disciplined about not running up a balance on the new card, too.

If you can qualify for a personal loan that shaves several percentage points off the APRs you’re paying, then you can also consider using those funds to pay off your other debts so you can focus on one predictable monthly payment. Just be sure to carefully review your new rate, any fees and your repayment term so you fully understand the cost.

Homeowners with sufficient equity may want to consider consolidating with a home equity loan or HELOC, which typically come with lower rates than personal loans since the financing is secured by your home. But because your home is used as collateral, you’ll want to make sure the payments for the new loan fit comfortably within your budget before you borrow.

With each option, the idea is that you’ll use the money freed up by the lower interest rates to target your principal balance.

“Each has some tradeoffs, but they are all worth considering if it lowers the interest rate and reduces the payoff timeline,” Lapp says. “Regardless of how the debt is handled, the underlying budget and spending gap still need to be addressed to ultimately make meaningful progress. Otherwise, they could end up with both a consolidated loan, and new credit card balances that continue to grow over time.”

4. Create a budget to free up money

If you’re only able to make the monthly payments, you likely don’t have much wiggle room in your budget. But doing a careful assessment may help you find one or two places where you can trim your spending.

“Budgeting for debt repayment isn’t about a stricter grocery budget,” Judge says. “It’s about the fixed costs nobody questions.”

He recommends auditing your subscriptions and calling to ask for better deals on your cell phone and internet bills. Shopping around for insurance (especially auto and homeowners insurance) at every renewal can free up some money, too. You should also redirect any raise or bonus straight to the highest-rate balance before lifestyle creep eats it.

5. Seek professional help

Borrowers who are struggling to afford just the minimum due each month may need some extra help. One option is reaching out to a credit counselor via the National Foundation for Credit Counseling or Financial Counseling Association of America. Counselors can help you create a budget, get copies of your credit report and more.

“They can help evaluate your situation and come up with a debt management plan,” Lapp says. “And, if needed, they may be able to help you find a reputable debt-relief company.”

When you enroll in a debt management plan, which requires a modest monthly fee, the credit counseling agency often gets creditors to slash the interest rate on your debt to make repayment easier. You’ll then make one monthly payment to the agency and the agency pays your creditors.

Another option is working with a debt settlement company. These companies negotiate with your lenders on your behalf to try to “settle” your debts for less than the full amount owed. They charge a fee based on a percentage of the debt you enroll with — though you only pay if they are successful in getting a settlement. Because negotiating with creditors typically requires a borrower to be past-due on their accounts, this option is best for consumers who are either already behind or at risk or becoming delinquent.