How to Pay off Credit Card Debt

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Tim Chen, a financial expert and founder of, reports that the average household owed about $15,611 in credit card debt in December 2014. If high credit card debt is becoming problematic, stop using credit and pay off the outstanding balances. The need to pay off credit card debt in full and according to a predetermined plan is especially important when you consider that how much you owe and your payment history makes up about 65 percent of your credit score.

Assess the Situation

MyFICO, the consumer division of the Fair Isaac Corporation, recommends that you request a free copy of your credit from each of the three major credit bureaus from and use these as a starting point. Review each one for accuracy and use the dispute process each bureau has to correct any errors. Make a list of your credit card accounts, outstanding balances, interest rates and minimum monthly payments, using your credit reports and credit card statements as references.

Create a Realistic Budget

Self-discipline and a realistic budget are essential for meeting essential expenses while paying off credit card debt. If you need help, the Federal Trade Commission Consumer Information website has a free budgeting worksheet you can use. When creating a budget, keep in mind that while you must make at least the minimum monthly payment on each credit card, paying only the minimum is the slowest and most expensive way to reach your goals. Review the payment information chart that credit card companies must include with each bill to see how many years it will take to pay each bill, and how much you will actually pay in interest by only making minimum payments.

Debt Targeting

If you can't pay off all of your credit card debt in a single payment without taking out a new loan, the American Institute of CPAs recommends debt targeting as the next best option. With debt targeting, you focus on paying off one card at a time. Pay as much as you can to the account with the highest interest rate and send minimum payments to the other accounts. Although this is the best way to minimize interest expenses, paying off credit cards according to their outstanding balance with the smallest balance first is another option.

Credit Card Balance Transfers

Credit card companies often point out the advantages of opening a new account and transferring outstanding balances to the new card. Many offer "teasers" like an interest-free introductory period. If you can pay the entire balance within this time, balance transfers can reduce interest expenses. If you decide on this option, do not use or close the accounts from which you transferred balances, as these actions may lower your credit score.