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A Guide to Managing Credit Card Debt

Credit cards can be useful — when used responsibly.

Justin Cupler

Contributing Writer at Tally

April 2, 2021

Credit card debt can get out of control quickly. From unforeseen expenses and an overextended budget to compounding interest charges, you can quickly find yourself staring at thousands of dollars in credit card debt

Credit cards can be a part of your personal finances, but you must know how to manage credit card debt so you can use these cards to your advantage instead of falling victim to their high interest rates. 

Below, we'll show you how to manage credit card debt and how to stay out of debt once you pay it off.

How to manage credit card debt

Managing credit card debt starts with paying it down, but it also includes avoiding it once you get out of debt. 

We'll cover both equally critical debt management topics. 

How to pay off credit card debt

There are plenty of credit card payoff plans out there, ranging from self-managed plans — like the debt avalanche or debt snowball methods — to debt consolidation and balance transfers. 

Debt avalanche

The debt avalanche payoff method is a self-managed debt repayment plan focusing on paying the debt with the highest interest rate first. If two debts have the same interest rate, you prioritize the one with the highest balance.

When using the debt avalanche, you channel all your extra cash toward the credit card account with the highest interest rate while making the monthly minimum payments on all your other debts. Once you pay off that first debt, you then apply all your extra money toward the debt with the next highest interest rate while making the minimum payments on all your other debts. Repeat this process until you repay all your debts. 

Because it focuses on high-interest debts first, the debt avalanche’s key benefit is it'll save you money on interest charges. It also gives you a prescribed order to pay off your credit card debt, eliminating any guesswork.

Debt snowball 

The debt snowball is similar to the debt avalanche method, but it prioritizes debts with the lowest balances. 

To implement this debt repayment process, apply all your extra cash toward the debt with the lowest balance while making the minimum payments on all your other debts. Once you pay off that debt, apply all your extra cash toward the debt with the next smallest balance while making the minimum payments on all your other debts. Repeat this process until you repay all your debts. 

Since the debt snowball focuses on your smallest debts first, its key benefit is the satisfaction of paying off your lowest balance debts quickly. This gives you quick wins, which can be significant motivators in your debt repayment plan. The downside is it ignores interest rates, which means you may pay more in interest charges over time. 

Debt consolidation loan

A debt consolidation loan is a personal loan that you use to pay off all your credit card balances. This type of loan has two key benefits: It reduces multiple credit card payments into a single monthly payment and usually has a lower interest rate than your credit cards. 

On top of those benefits, a debt consolidation loan is a fixed-term loan, so you know the exact date you'll be debt-free. 

The biggest drawback to a debt consolidation loan is it often requires a good credit score to get approved. Also, because they have shorter repayment terms than a credit card, your monthly payment may be higher with a debt consolidation loan. 

Home equity line of credit

A home equity line of credit (HELOC) uses the equity in your home — the appraised value of the home minus any mortgages or loans taken out against the home — as collateral for a line of credit. You can use this low-interest line of credit to pay off high-interest credit card debt with fewer interest charges. 

With a HELOC, you'll have a line of credit to pull from as you need, and you'll only pay interest on the cash you use. So, if you get approved for a $50,000 HELOC but have only $25,000 in credit card debt, you can leave the remaining $25,000 untouched without consequence. 

The key benefit to a HELOC is its low interest rate and longer repayment terms. This gives you the option to pay it off quickly and save interest or to take more time and potentially reduce your monthly payments relative to making the minimum monthly payments on your credit cards. 

The downside is your house will be used as collateral, and the lender can foreclose on it if you default on the loan. Also, you need a good credit score and sufficient equity in the home to get approved. Finally, HELOCs often have variable interest rates, so your rate could rise significantly. 

Home equity loan

A home equity loan is similar to a HELOC as it uses your home's equity to get approved for a low-interest loan. The key difference is a home equity loan is a fixed-term loan with a one-time lump-sum payout — instead of having the ability to draw the cash you need when you need it.

A home equity loan has all the same benefits and drawbacks as a HELOC, except home equity loans typically have a fixed interest rate, so there's no worrying the interest rate will rise. 

Personal line of credit

A personal line of credit is similar to a HELOC, as it gives you access to a lower-interest credit line to draw from and repay your higher-interest credit card debt. The key difference is a personal line of credit is unsecured, so there is no collateral the bank can foreclose upon. 

Tally offers a personal line of credit you can use to pay off that high-interest credit card debt and turn multiple monthly payments into just one. Additionally, Tally helps you create custom payoff plans and automates all your monthly credit card payments. 

The drawbacks are personal lines of credit often have higher interest rates than HELOCs due to them being unsecured. Also, you often need a good credit history and score to get approved, though Tally typically requires a minimum credit score of just 660 to qualify. 

0% balance transfer

Credit card companies will periodically offer balance transfer promotions that give you no-interest financing for a specified period. Typically, these promotional periods are 6-18 months. 

If you can pay off the balance within the promotional period, you'll get out of debt without paying a dime of interest. Plus, with no interest to muddy up your calculations, you can easily determine exactly how much to pay each month to get out of debt within the promotional period.  

If you can't pay off a balance within the promotional period, you can roll the remaining balance onto another card offering a balance transfer promotion if one's available. 

The benefits of using a balance transfer include super-low or no-interest financing and the ability to easily calculate how much you need to pay each month to be debt-free. The downsides: They are generally short-term repayment offers and credit card issuers often charge a 3% to 5% balance transfer fee based on the amount you transfer. 

Credit counseling agency

If you're not sure how to manage your credit card debt, you can always get free or low-cost help from a credit counselor. Credit counseling agencies that are accredited by the National Federation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) are nonprofit agencies. They often work for free or at a significantly reduced price — generally no more than $50 per session — to help you develop an action plan. 

They will review your overall financial situation — including the amount of debt, interest rates, late payments, income, and more — to help you with budgeting and creating an attack plan to pay off your debt. To do this, most credit counselors will have to pull your credit report for review. 

How to avoid debt

The next step in managing credit card debt is avoiding it altogether. After pulling yourself out of credit card debt, the last thing you want to do is fall back into bad habits. Here's how to avoid a debt relapse. 

Create a monthly budget

A monthly budget is critical to financial success, as you don't know if you're financially ahead or behind without knowing where your money is going. Whether you opt for the zero-based budget, the envelope budget, or another budgeting process depends on your goals, but what really matters is choosing one and sticking to it. 

With a budget in hand, you can take full advantage of your credit cards’ benefits by using them for your monthly expenses and paying them in full by the due date each month. This will earn you all the reward points the card offers without costing you a penny in interest. 

Build an emergency fund

A common cause of sudden and unmanageable credit card debt is an emergency. If you have an unexpected health issue, car problem, or other costly issue, your first instinct may be to grab your credit card. 

If you have an emergency fund covering 3-6 months of your salary, you can use this instead of a credit card to cover these expenses. 

Understand your spending habits

Everyone has slightly different spending habits, and these can sometimes get us into financial binds. For example, some people are great at avoiding impulse spending, while others can't resist the temptation and pull out the credit card to satisfy the itch. 

If you fall into the latter category, it may be best to avoid keeping credit cards on you. You may want to enlist a friend or family member's help by asking them to hang onto your credit cards for you. 

The key to managing credit card debt: Regimen

Like so many other things in life, the key to managing personal finances and credit card debt is regimen. By sticking to a plan,  you may find it becomes almost second nature. 

There are plenty of regimented options for paying off debt, including self-managed systems like the debt avalanche or debt snowball. You can also look toward forms of consolidation or even use a credit card payoff app like Tally.1 

Once you've paid off your credit card debt, it's all about maintaining your debt-free status with more financial regimens, including creating a monthly budget, building an emergency fund, and understanding your spending habits.

With all these processes in place, you can now manage credit card debt like a pro and live a debt-free life.

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.9% - 25.9% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.