How To- Pay Off Credit Cards

There are many ways and reasons to find yourself with recurring balances on your credit cards. And, with Annual Percentage Rates (APRs) up to 30%, it can be very difficult to pay off those balances. Worse, if you pay only the minimum balance each month, you can find yourself easily paying 3-4 times the original purchase price in interest.

So you decide you want to pay off your credit cards and keep that money for yourself instead of giving it to the bank. But how?

The obvious answer is to pay more than you charge until the balance is paid in full. Easier said than done, right? You need a plan.

The first step is to create a budget of your current expenses. See “How To- Create a Budget” for step-by-step instructions. Also review “How To- Allocate Your Income” if you have not yet set up your buckets.

Next, you have to figure out how much of your income you can use to pay down your credit card balances. This has to come from your “Living Expenses” bucket. Do NOT use funds from any of your other buckets unless you can honestly say you purchased something on that credit card that fell into that category and you have not yet used that bucket to pay for the purchase. Look to see which Living Expenses items you can reduce or eliminate. Maybe you give up cable for a few months or turn the thermostat up or down a few degrees to conserve utility expenses. If your credit card debt is more serious you may want to consider downsizing your housing or automobile. Or you can look for a job that pays more. Whatever you can free up from a current Living Expense you can use toward your credit card(s).

If you have more than one credit card carrying a balance, make a list of all your cards, the balance, the minimum payment, and the interest rate. There are two trains of thought on how to proceed:

Option 1: Focus on the card with the lowest balance.
Pay the minimum balance on all the cards except the one with the lowest balance. Use the remainder of the funds you have available to pay off the card with the lowest balance. This can provide a quick win. Then you can start allocating the funds you were using to pay off this card to pay off the next lowest balance card. Continue until all cards are paid in full.

Option 2: Focus on the card with the highest interest.
Pay the minimum balance on all the cards except the one with the highest interest. Use the remainder of the funds you have available to pay off the card with the highest interest. Since the card with the highest interest rate is costing you the most in interest, you will feel like you are saving more money by getting rid of card balances that cost you the most in interest.

Option 3: Focus on the card with the largest or smallest monthly payment.
This is similar to Options 1 and 2, except you choose the card to focus on and pay off first based on the monthly payment.

Option 4: Across the Board
This is for when you cannot decide. Just pay more than the minimum on all your cards. While you will not get a quick “reward”, you will pay off your cards sooner than you would if you only paid the minimums.


Regardless of which option you choose, stay consistent and keep working on it. Make sure you do not purchase more with your credit cards than you can pay in full each month.

Credit cards can be a great tool for earning “free” rewards and travel (see “How To- Choose the Right Credit Card”), but those rewards lose their value if you overpay in interest.