10 strategies to help you pay off your credit card

woman at the top of a mountain cheering, as an allegory to defeating debt

Photo by Nina Uhlíková from Pexels

Credit cards have become ubiquitous, used to pay for everything from gas to travel to home delivery. Managed properly, they’re also essential financial tools, allowing cardholders to build credit, earn cash back or travel points, and gain valuable perks, like insurance or purchase protection. Carrying a balance, however, changes everything. “Credit card debt is very high-interest debt, typically in the neighbourhood of 20% or more,” says Scott Hannah, president and CEO of Credit Counselling Society. At that rate, even a modest balance can spiral quickly out of control.

If you’re holding a balance on your credit card, paying it off is task number one, so you can once again enjoy its benefits. Here are 10 solid tips to help you get to a $0 balance, faster.

1. Examine your spending habits

It might seem obvious, but you can’t improve on something if you don’t understand it. “Typically, when someone comes to us looking for help, our first goal is to look at their expenditures and balance their budget,” says Hannah. “Most people can account for 75% to 80% of their expenditures, and then it gets foggy.” The purchases making up that remaining 20% to 25% typically contain a lot of information. Once you identify these expenses—whether a round of drinks for the team at work, an extra shot of whip on a latte, or even an occasional treat in your groceries—you become empowered. Knowing how you accumulated debt helps you build a strategy against future financial shortcomings.

2. Build a budget

Now that you have a clear picture of your debt load and how you’re spending your money, it’s time to make a budget. This step doesn’t have to be fancy or complicated. In fact, there are loads of apps and calculators, including a downloadable template on the Credit Counselling Society site. The task here is to log your income and your expenses to see where you can find money to put against your debt. Add a line item for every expense, like rent or mortgage, car payments, utilities, groceries and your outstanding credit card debt. Hannah notes that even if you’re in debt, it’s crucial to put away money for an emergency fund. “This way, you have the cash to deal with emergencies, so they don’t upset your debt repayment.”

Understandably, most people hate following a budget, but you can make it easier on yourself. According to Hannah, one of the biggest budget missteps is not making room for small occasional splurges. “You don’t pay down debt in a month or two. You need to plan for the long haul and you can only put yourself on a really tight budget for so long.”

3. Pay more than the minimum

The minimum payment on your credit card bill is around 2% of the previous month’s balance. The problem is, if you pay only the minimum, the majority of that money goes toward the interest (usually accumulating at around 20%), not the principal (the amount you actually owe). “Though it would take a long time, you could pay down your debt by paying the minimum,” Hannah says, “as long as you’re not using the credit card as well.” A better and far faster strategy is to find some extra every month and apply it to the debt. Be realistic and consistent. “Aim for paying an extra $50 dollars per month, $100 per month,” Hannah suggests.

4. Negotiate for a lower rate

Did you know you can negotiate with your bank? It is possible, according to Hannah. “A lot of times people just don’t ask.” If you’re struggling with your credit card debt you can call the lender (the bank that has issued your card) and ask for a lower interest rate. The reason why is simple: The bank will lose more than a few percentage points if you default on your debt entirely (meaning, they earn less money off of your interest owed), so it’s in their interest to give you a break.

It helps if you’ve been a long-time customer and can demonstrate a history of timely payments. “It’s important as a consumer to know where you stand,” Hannah says. “I would encourage someone to have a copy of their credit report and use that to ask for a rate they want. The worst thing that can happen is they will say no. And then you can go elsewhere like to a low interest card or using a balance transfer promotion.” (Wondering: ‘What’s my credit score?” Here’s how to find out.)

5. Use a balance transfer promotion

Many credit cards periodically run promotions on balance transfers to entice new customers to bank with them. These offers generally involve a low interest rate, typically 0% to 1.99%, for a limited amount of time (usually six to 10 months). You should look for the lowest rate and the longest promotional period to give yourself a bit of time to get out from under your debt.

There are two caveats to keep in mind. Even if the promotional rate is 0%, there is a fee for making the transfer—usually 3% of the amount transferred. (That means if you’re transferring $1,000 in debt, you will pay a fee of $30, which is added to your balance.) Also, after the promotional period has expired, you will be paying the regular interest rate of that card. That said, with a bit of strategic planning you take a chunk out of your debt using a balance transfer.

View Canada’s best balance-transfer credit cards

6. Make the switch to a lower interest credit card

If, after examining your spending habits and doing up a budget, it has become clear you will likely carry a balance most months, it may be a good idea to look into a low-interest credit card. These cards usually have few (if any) perks but they can knock a bunch of percentage points off your purchase interest. Rates will vary but may be as low as half of a typical credit card.

View Canada’s best low interest credit cards

7. Start an avalanche

Those carrying debt with several creditors may want to consider the avalanche method. This debt repayment strategy has you make the minimum payment on all your debts, and apply any extra money to the debt with the highest interest rate. “If you attack high interest first, you’re paying less interest,” Hannah says. The avalanche method minimizes the interest you pay while paying off multiple debts.

8. Pack a snowball

Alternatively, you might consider the debt snowball method. With this strategy, you repay debt by amount owed, smallest debt to largest, regardless of interest rate. “This way, you’re racking up wins—and everybody wants immediate wins,” says Hannah. “The ability to pay off a credit card one by one is very empowering.” While you might pay a little more in interest, you’ll benefit from the momentum. “It’s like going to the gym,” Hannah says. “If you say you want to lose 50 pounds you might get discouraged. But what if you aimed to lose a pound a month?”

9. Consider paying off debts before investing

The issue of whether or not to invest while paying off debt can be thorny. On the one hand, the interest in your credit card debt will likely eat up any gains in the market. That said, debt repayment is a long process. Hannah recommends staying in the market. “Yes, people should still invest while paying down their credit card debts,” he says. “The rates are substantially lower than in previous decades, so for a person to have a reasonable income in retirement they have to save longer and more.” Some companies, he adds, have RRSP-matching programs. “It would be a shame not to participate,” he says. “Again, you have to take a long-term view.”

10. Use more cash

Credit cards are valuable tools, but only when they’re used properly. If you’re holding some debt, you might want to scale back to using only one credit card (like a low interest card), or paying with cash except in emergencies. “Don’t make any expenditures on your credit card unless you have the funds in your bank account to pay it off,” says Hannah, noting this way you can still earn rewards and have the safety and convenience of spending with a card without accumulating debt.

If you have credit card debt, you want to pay it off as quickly as possible. Even so, it’s usually a long process. Acquainting yourself with your own spending habits, building and sticking to a budget, and prioritizing your debt will get you a long way. Approaching your creditors and identifying appropriate financial strategies and products can nudge you to the finish line.