How to lower your credit card debt

For a lot of families, this summer will be about catching up with friends and relatives, taking long-postponed trips, and getting to know the “new normal” of 2021.

But vaccinations and vacations shouldn’t be your only goals for this summer. If you’re dealing with credit card debt, summer 2021 might also be a good time to commit to paying off as much of your debt as possible. Why? Because interest rates are at an all-time low — which means that credit card terms are temporarily in your favor.

“The Federal Reserve recently announced it would be holding rates at near zero, likely until 2023,” explains Lawrence Gonzalez, Certified Fraud Examiner (CFE), financial literacy coach, and founder of The Neighborhood Finance Guy. “For consumers, that means that banks and credit card companies will be extending offers of 0% interest, credit card rewards, and balance transfers.”

Not only are credit cards offering consumers extra rewards and promotional zero-interest rates, but standard credit card interest rates are still atypically low. While the credit card interest rate  has risen slightly since the beginning of 2021, current interest rates are still hovering around 16% APR on average — which means that if you are in credit card debt, paying it off while interest rates are low could be a very smart move.

But you’re probably wondering how to lower credit card debt, especially if you don’t know where to begin? We asked the experts for advice, tips on staying motivated, and suggestions on how to pay off debt while saving for the future — and created a step-by-step guide to help you pay off your credit card debt this summer.

Get your finances in order

The first step in paying off your credit card debt? Get your finances in order.

“One of the best ways to get started on your debt repayment is to write down all your debts,” says Gonzalez. He suggests using top budgeting apps like Mint, Personal Capital, and YNAB to  get a detailed picture of how much debt you are currently carrying.

These apps also help you track how much money you bring in every month and where that money goes. This can help you understand whether your debt is related to your day-to-day overspending — or whether you usually spend within your means but got into debt because you used credit cards to cover emergencies that you couldn’t pay for in cash.

Once you know how much you’re earning and spending — and once you understand how those numbers relate to your current credit card debt — you can begin making a plan to lower your debt and, eventually, pay it off in full.

Write down why you want to become debt-free

After you’ve written down your debts — or used a financial app like Mint to write them down for you — it’s time to write down why you want to become debt-free.

No, seriously. Don’t skip this step.

Taking the time to write down why you have decided to pay off your debt can help you stay the course, explains Betty Wang, Certified Financial Planner® (CFP) professional and founder and president of BW Financial Planning. The letter you write yourself today becomes a formal commitment to a better financial future — and having that written record at hand will remind you to keep working towards that future, especially if your debt repayment process takes a long time or involves a little more budgeting and financial tracking than you’re used to.

“Remember your WHY,” Wang told us. “Write down all your reasons for paying off your credit cards, and when you are struggling, re-read all of your whys to keep you motivated.”

Use debt repayment strategies that work

Once you know how much money you owe and why you want to pay it off, it’s time to start making the payments — and although you could come up with your own customized debt repayment plan, you’ll be much better off using a strategy that has already been proven to work.

Here are three of the most common debt repayment strategies:

• Debt Snowball Method: Focus on paying off your smallest debt first while making the minimum payments on all of your other debts. Once your smallest debt is paid off, shift the debt snowball strategy to your next-smallest debt. As you pay off each debt in turn, the money you can put towards your next debt will grow — or, as the name suggests, snowball.
• Debt Avalanche Method: Focus on paying off your highest-interest debt first while making minimum payments on all of your other debts. Once your highest-interest debt is paid off, shift the debt avalanche strategy towards your next-highest-interest debt. As you pay off each debt, in turn, the money you can put towards your next debt will get bigger, and the money you pay in interest charges each month will get smaller.
• Debt Consolidation Method: Use a balance transfer credit card to consolidate all of your credit card debt onto a single card — or take out a personal loan and use the loan to pay off your existing credit card debt. At that point, you’ll go from multiple credit card payments every month to one single payment on your balance transfer card or personal loan. Put all of your extra money towards this single outstanding debt until it is paid off in full — and if you find a balance transfer credit card with an introductory zero-interest rate, see if you can pay off your consolidated debt before the 0% intro APR period ends, saving you a solid chunk of change in interest.

Once you choose a debt repayment plan or strategy, take some time to learn as much about it as possible. That way, you’ll know how to use it to your advantage — and learn a few tips and tricks that can make the debt repayment process go even faster.

Want an example? Here’s a helpful Avalanche Method tip that Gonzalez shared with us: “If you choose to go with the Avalanche approach, I suggest you flurry some little wins here and there when small balances are close to zero. If you are paying down Credit Card A with an extra $250 monthly, but see Credit Card C at $250, you can score a quick win paying C off next month.”

Learn how to have fun on less money

No matter which debt repayment strategy you choose, you generally have two options when it comes to setting aside money for your debt payoff: spend less or earn more.

If you want to lower your credit card debt as quickly as possible, you’ll do both. This could mean picking up a side hustle while cutting back on streaming media services — which, since your side hustle will probably eat into your movie-watching time, could turn out to be a win-win.

That said, you don’t want to feel like your life has been reduced to penny-earning and penny-pinching. Make sure you take time to have fun — and take the time to learn how to have fun without going over your budget.

“Debt doesn’t have to be all doom and gloom,” says Gonzalez. “Lean in and challenge yourself to new ways to have fun for less money.” Whether you enroll the family in your local library’s Summer Reading Challenge or decide that this year’s vacation will be a week-long stay at the grandparents’, there are plenty of free or low-cost ways to have fun this summer — and, as we learned when we talked to parents about their Summer 2021 plans, after last year’s quarantine advisories and shelter-in-place recommendations, many kids will view any type of outing as a treat.

Don’t forget about saving and investing

As you lower your credit card debt, don’t forget about the other major component of financial stability: saving for the future. 

Why is it important to save money and pay off debts simultaneously? Why not put every extra penny towards your debt and pay it off as quickly as possible?

Well, look at it this way: If you spend all summer paying off your credit cards only to get hit with an emergency expense that you can’t cover in cash, you might find yourself with no choice but to go back into debt. This is why financial experts often recommend prioritizing emergency fund savings over all other financial goals — even if it means taking a little longer to pay off your debts.

If you want to pay off your debt while building an emergency fund, come up with a few easy financial rules to help you decide which dollars should go where. You could split your extra money 50/50, or you could tell yourself that the money you earn from your side hustle goes towards your emergency fund and the money you save by cutting expenses goes towards debt repayment. Either way, having a plan will make it more likely for you to achieve your goal — and saving even a little bit of money as you pay down your debt could help you avoid going into debt in the future.

Set — and celebrate — financial milestones

There’s one last step to keep in mind as you move closer and closer to your debt repayment goals — and that’s to celebrate every milestone as it happens. Did you use the Snowball Method to successfully pay off your smallest debt? Crank up a tune like “Money” (the one by Cardi B, or this one, your choice) and have a living room dance party with your partner. Did you successfully lower your credit card debt by $1,000, $2,500, or $5,000? Take the entire family out for ice cream.

“If you have a lot of debt, I think it’s tough to stay the course because it’s going to be a long haul,” explains Joe Saul-Sehy, creator and co-host of Stacking Benjamins and author of the forthcoming STACKED: Your Super Serious Guide to Modern Money Management. “Instead of celebrating only when you reach the bottom of the card-paydown, set milestones along the way. If you have $30,000 of debt (like a recent guest did on our show), set milestones every $2,500 you eliminate, and celebrate in a small way to be grateful for the journey so far.”

Saul-Sehy also suggests making sure you have plenty of visual reminders of how much debt you’ve paid off so far. “I like visually showing my progress by using a thermometer posted in a spot that I can see.” Most popular budgeting apps will automatically create debt repayment charts for you, but there’s something fun about grabbing a red Sharpie and coloring in another chunk of your debt repayment thermometer — or filling in one more footprint on your path towards a debt-free life.