How to Pay Off Credit Card Debt

How long does it take to pay off a credit card?

Payoff time depends on the balance, the APR and how much you pay each month. A $6,000 balance at 22% APR takes 3 years 8 months and costs $2,790.68 in interest at $200 a month, but only 1 year 2 months and $839.14 in interest at $500 a month.

Card interest accrues monthly at roughly APR ÷ 12, so at 22% the first month's interest on $6,000 is $110. Any payment below that amount never reduces the balance. Everything above it goes to principal, which is why each extra dollar shortens the payoff so sharply. The figures below come from our credit card calculator with interest charged monthly and no new purchases.

Why does paying only the minimum take so long?

Minimum payments are usually set as interest plus a small percentage of the balance, so they shrink as the balance falls and the payoff stretches out for years. In the table, the interest-plus-1% plan starts at $170 a month, close to the $150 fixed plan, yet takes more than three times as long and costs about twice the interest.

Under the federal CARD Act, your statement must show how long it would take to pay off the balance with minimum payments only, and the monthly payment needed to clear it in three years. That three-year figure is a useful starting target. For the $6,000 example at 22%, it is $229.14 a month, with $2,249.14 of total interest.

The simplest fix is to pick a fixed payment and keep paying it even as the required minimum drops.

What is the debt avalanche method?

The debt avalanche method pays the minimum on every card and sends all extra money to the card with the highest APR. When that card is paid off, its payment rolls to the next-highest rate. Because the most expensive balance shrinks first, avalanche always produces the lowest total interest.

Our credit card payoff calculator uses this order by default and compares it with snowball and with paying minimums only. Its downside is motivational: if your highest-rate card also has a large balance, months can pass before any card reaches zero.

What is the debt snowball method?

The debt snowball method sends extra money to the smallest balance first, regardless of rate, then rolls that payment to the next-smallest. It costs somewhat more interest than avalanche but delivers an early paid-off card, which some people find easier to stick with.

If your smallest balance also carries the highest rate, the two methods are identical. They diverge when a small balance has a low rate, as in the example below.

Debt avalanche vs snowball: which saves more?

Avalanche saves more money; snowball usually pays off the first card sooner. With three cards totaling $15,000 and a $600 monthly budget, avalanche finished one month earlier and saved $354.76 in interest. Snowball cleared the store card in 8 months, while avalanche took 17 months to clear its first card.

Assumptions: fixed minimum payments of $50, $125 and $200, a constant $600 total budget (freed-up minimums roll to the next card), monthly interest at APR ÷ 12 and no new charges. Paying only the minimums on the same cards takes 6 years 10 months and $11,242.74 in interest.

How do you make a credit card payoff plan?

List every card, choose a monthly budget you can sustain, and point the extra at one card at a time. Step by step:

• Write down each card's balance, APR and current minimum payment from your latest statement.
• Set a monthly budget for all cards together. It must be at least the sum of the minimums; anything above that is your extra payment.
• Choose avalanche (highest APR first) or snowball (smallest balance first).
• Pay minimums on every card on time to avoid late fees and penalty APRs, and send the extra to your target card.
• When a card hits zero, keep the total budget the same and move that card's payment to the next target.
• Stop adding new charges to the cards you are paying down, or the balance can grow faster than you pay it.

Should you consolidate credit card debt?

Consolidation saves money when the new loan's real cost, including fees, is lower than your cards' rates, and when you do not run the cards back up. A personal loan has a fixed rate and a fixed end date; a balance transfer card offers a low introductory APR for a limited time, usually with a transfer fee.

Example from our debt consolidation calculator: three cards with $24,000 of balances at 17.99%, 19.99% and 18.99%, paid at $630 a month, take 5 years 5 months and cost $13,056.45 in interest. A $25,000 five-year loan at 10.99% with a 5% origination fee ($1,250) costs $543.44 a month and $7,606.15 in interest. Including the fee, the loan saves $3,200.29, and its real APR is 13.25%.

For a mix of debts beyond credit cards, such as car loans and student loans, the debt payoff calculator shows how extra payments shorten the whole list.

What else lowers the cost of credit card debt?

Lowering the rate and avoiding fees speeds up any plan. A few options:

• Ask your card issuer for a lower APR, especially if you have a record of on-time payments.
• Pay as early in the billing cycle as you can, because interest is usually figured on the average daily balance.
• Avoid late payments, which can trigger a late fee and a penalty APR.
• Put windfalls such as tax refunds or bonuses on the target card as one-time payments.
• If you are behind, a nonprofit credit counseling agency can set up a debt management plan with reduced rates.