How to pay off credit card debt in a year (or less)

Persistent inflation issues have continued to impact the nation, but recent data shows that the inflation rate improved slightly last month, dropping to 3.4% in April compared to the year prior. That's a significant decline from what we saw from 2021 to 2023, when inflation climbed a cumulative 16.9%. However, today's inflation rate is still higher than the Federal Reserve's 2% target rate, which has resulted in the Fed keeping interest rates elevated in an effort to cool inflation. The agency indicated earlier in the year that it would likely reduce the federal funds rate in 2024, but for now, it remains at a 23-year high.

That's bad news for credit card users now paying higher interest rates on their debt. The agency reports the average credit card interest rate is 22.63%, with many cardholders paying upwards of 30% interest on their outstanding debt balances. As a result, many Americans who carry a credit card balance from month to month are struggling to stay current on their accounts. In fact, data from the Federal Reserve Bank of New York shows that 6.4% of all credit card accounts are 90 days past due.

Credit card debt can damage your finances in the short and long term, so paying it down as quickly as possible is crucial. While this task may seem daunting, the right strategies can simplify the process. 

Need extra help with your credit card debt? Find out how the right debt relief company could help.

How to pay off credit card debt in a year (or less)

Here are some of the most effective methods to tackle your credit card debt once and for all.

Contact your credit card issuers

Before examining some longer-term methods to pay down your credit cards, there's an action you can take right now to potentially lower your interest charges, and that is to request a rate reduction from each of your credit card issuers. If you've been a loyal customer for a while and always pay your account on time, they may grant your request. It's one of the most direct ways to reduce interest charges, and all it takes a phone call and a few minutes of your time.

Gregory G. Guenther, a financial planner with GRANTvest Financial Group in New Jersey, says this request could also include additional benefits.

 "I encourage my clients to call the credit card companies, request to speak with a manager, and ask for interest or penalty forgiveness, a temporary pause on interest and a reduction in the interest rate," Guenther says. 

According to Guenther, it's key to get a decision-maker on the phone and be ready to explain the reason for your request. 

"There are often life circumstances and important context involved in the situation that can increase the successful outcome of the request," he says.

Explore your credit card debt relief options here.

Review your budget

While securing lower interest rates from your credit card company could be a quick win to kick-start your debt-reduction efforts, don't forget the basics. Namely, take a look at your financial situation and budget to determine how you got in debt, where your money is going and where you could make changes to lower your expenses.

"Start with reviewing your budget carefully [and] review what's necessary versus 'nice-to-haves' [and] where you can try to spend less," says Li Tian, CFP and investment advisor representative at LPL Financial. "If you've had high interest rate credit debt for a while, something is not working and needs to change. Find ways to spend less, but also try to pay more to chip away the existing debt."

Pay more than your minimum payment

Credit card companies make money on the interest you pay each billing period when you carry a balance from month to month. The longer they can charge you interest, the more money they stand to make. 

It's not surprising, then, that the minimum payment they charge is typically a mere 2% to 4% of your balance. If you pay only your minimum, plan on being in debt for a long time.

Let's say you have a $3,000 credit card balance with minimum monthly payments of $60. With minimum payments only — in this case, 2% of your balance — it'll take you nine years and one month to zero out your balance, while paying $3.504 in interest. 

However, if you pay an additional $40 each month, you'll pay off your balance five years and seven months early (42 months total) and spend $1,193 — a 66% savings.

Consolidate credit card debt

If you're facing overwhelming high-interest credit card debt but have good credit, consolidating them into a single account can simplify your finances. You'll only have to make one monthly payment and you might save on interest charges. 

Two of the most common ways to consolidate credit card debt are through 0% introductory APR balance transfer credit cards and debt consolidation loans:

• 0% introductory APR balance transfer credit cards: Balance transfer credit cards allow you to transfer credit card balances interest-free for a specific period, typically 12 to 21 months. That could be enough time to pay off or significantly reduce your credit card balance, especially since you aren't paying interest on the debt. However, resist the urge to rack up debt on your old cards, or you could end up in a larger debt hole. Also, bear in mind that any remaining debt balance after the introductory period expires is subject to the card's standard rate. Even after paying a balance transfer fee of 3% to 5% of the transferred amount, you could come out ahead with such substantial interest savings.
• Debt consolidation loans: Debt consolidation loans are personal loans that allow you to combine your debts into one loan account. You'll repay the installment loan each month for a specific period at a fixed interest rate. According to the Federal Reserve, the average interest rate on a 24 personal loan is 12.49% currently, which is substantially lower than average credit card rates. One perk of debt consolidation loans is that you'll have a payoff date you can circle on your calendar, which differs from open-end credit card accounts. Keep in mind, though, that personal loans often include origination fees, which can run as high as 10% of the loan amount.

The bottom line

Having the right mindset is critical, says Kevin Coombs, CFP and lead financial planner at Donaldson Capital Management. 

"People can easily feel overwhelmed by their debt, like they're drowning in it and will never be free of it. With this mindset, it's easy to feel hopeless ... and [they] don't take action to improve their circumstances. It's often helpful to think of their debt as temporary and fixable," Coombs says.

Consistency is the key when it comes to paying off your debt quickly. Whenever you have extra money, consider applying it to your credit card balances before you have a chance to spend it. Reinforcing good habits like this can keep you on track and help you stay motivated.