Paying Off Credit Card Debt? Stop Making These 9 Mistakes

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Key takeaways

A repayment plan can help you stay on track and pay what you owe more effectively.
Only making the minimum payments will dig you further into debt.
Build an emergency savings fund as you pay off credit card debt so that you do not have to rely on credit in the future.

It’s easy to fall into credit card debt and much harder to pay it off. According to the Federal Reserve Bank of New York, American credit card debt reached $1.17 trillion in Q3 2024. Debt is a serious problem that plenty of consumers struggle with, but you don’t have to let it tie you down.

Paying off credit card debt takes time, effort, and dedication. There are plenty of mistakes you can make along the way that will take you off track. As you work to get out of credit card debt, be on the lookout for these 9 common blunders.

Making only minimum payments
Failing to create a repayment plan
Not negotiating with creditors
Overlooking debt consolidation options
Using your cards while paying off credit card debt
Splurging after making progress
Waiting to build emergency savings
Closing old accounts once the balance is paid off
Wasting extra cash
Bottom line

Making only minimum payments

Making only the minimum payment on your credit card is one of the worst things you can do. Over time, this common mistake can cost you hundreds or even thousands of dollars.

Most credit card companies set the minimum payment as a percentage of the outstanding balance. Typically, it is 1% to 5% of the balance, including accrued interest.

When you only pay the minimum, most of your payment goes toward interest charges rather than reducing your principal balance. You will continue to accrue interest on the remaining balance. The additional interest can prolong your debt payoff plan for years.

This information isn’t hidden; it’s part of your credit card statement, thanks to the CARD Act of 2009. The act requires companies to disclose how long it would take to pay off your balance if you only make minimum payments.

What you can do is pay more than the minimum every month. Any extra cash you can add can take years off your debt.

Failing to create a repayment plan

Failing to create a repayment plan is like shooting in the dark. Without a clear strategy, it’s easy to get overwhelmed and sidetracked. The first thing you need to do is set a realistic budget. Write down your income and essential expenses. Then, see how much you can afford to pay creditors each month. Pay your creditors as soon as you receive your paycheck. Do not wait till the end of the month when you may have already spent the money. If you have any extra money at the end of the month, throw that towards your debts, too.

Be sure to give yourself some ‘fun money‘ too. Having a little wiggle room in your budget to treat yourself will make sticking to a repayment much easier.

Snowball method

If you want more structure and motivation, try the snowball method. In this strategy, you list everything you owe from smallest to largest. You continue to make the minimum payments on all your cards. At the same time, you put all your extra money towards your smallest debt. Once you’ve paid off the smallest balance, you do the same with your second smallest one. The snowball method is good for quick wins and motivation.

Avalanche method

If you want to save money, try the avalanche method. List all of your debts from highest to lowest interest rate. Pay down the card with the highest interest rate first while continuing to pay the minimum on other cards. It may take longer, but you’ll save money.

Committing to a repayment plan will get you out of debt faster. Find a strategy that works for you be it snowball, avalanche, or a combination.

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Not negotiating with creditors

Many people don’t realize that many financial institutions offer options to help you pay back what you owe. They will even negotiate credit card debt with consumers.

Call your creditors and ask about a payment or hardship plan. These plans can reduce interest rates, waive fees, or move due dates to make paying off your balances more manageable.

You can also request forgiveness for credit card debt. Credit card debt forgiveness is when you pay a lump sum that is less than what you owe, and your creditor forgives the remaining balance. Debt settlement has its drawbacks. It can lower your credit score, you may owe income tax on the forgiven debt, and you’ll pay fees if you work with a debt settlement company. Even so, it may be worth pursuing if you have no other ways to pay off credit card debts.

Remember, credit card companies will negotiate debt. It is better for them to work out a payment plan or settlement with you and get paid than to risk bankruptcy and receiving nothing at all.

Overlooking debt consolidation options

Consolidating debt can lower your monthly payments and help you repay the money more effectively. You can take out a personal loan to pay off credit card debt or apply for a balance transfer credit card.

Debt consolidation loans

A debt consolidation loan is when you take a personal loan and use the funds to pay off multiple credit cards. You end up with a single monthly payment, ideally at a lower interest rate. You will save money in interest and have a better chance of avoiding late fees.

Balance transfer cards

Balance transfer cards let you move existing credit card balances to a new card. These cards often have a low or 0% introductory APR for 12 to 21 months. Pay off your balance during the introductory period, and you will save money in interest. The catch with balance transfer cards is that they often come with balance transfer fees, and you will need good to excellent credit to get one.

Debt consolidation can help you get out of debt for less. You still need to make payments every month and be sure that any fees and interest rates are less than what you’re currently paying.

Using your cards while paying off credit card debt

You’re digging into a bigger hole when you continue to charge items while paying off debt. You will have to pay interest on the new purchases as you continue to pay down your old balance. With interest rates at an average of 23% APR, this will add up fast.

To fully commit to repaying debt, you need to stop using credit. Cut up your cards or literally freeze them so you won’t be tempted to spend money. Stick to debit cards and cash.

Splurging after making progress

You may want to celebrate as you pay down your outstanding balances and reach your goals. And you should – but do it in moderation. Spending too much can derail all the progress you’ve made.

Find a treat that fits into your budget. Do not skip payments or start using your credit card again.

Waiting to build emergency savings

It may seem counterintuitive to save while trying to pay off credit card debt, but it’s very important. An emergency fund means you don’t need to borrow money the next time an unexpected expense pops up. And they will come up.

How much you should save while paying off debt varies. A good rule of thumb is to set aside three to six months of expenses. If you’re deep in debt, save up $500 or $1,000 before splitting your efforts between debt payment and savings.

An emergency fund is well worth it as it will help you stay out of debt in the future.

Closing old accounts once the balance is paid off

When you’re no longer using an old account, it may sound like a smart move to close it. Think twice as it can hurt your score.

When you close an account, you shorten the average length of your credit history – how long you’ve had accounts. Lenders like it when you have a long credit history because it gives them more data to determine your risk as a borrower. Shortening your credit history will lower your score.

Closing an account will also affect your credit utilization ratio. Your utilization ratio is the second most significant factor in determining your credit score. It is calculated both on an individual basis – per card – and cumulatively for all cards. Closing an account reduces your cumulative credit limit, which can increase your credit utilization rate, hurting your credit score.

The exception to the rule is if your card has high annual fees. Then, it may be better to take the hit to your credit and close the account.

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Wasting extra cash

Any time you get extra cash – bonus, tax refund, or gifts – put it toward repaying debt. It’s tempting to spend it on yourself, but wait on that. The more money you put towards outstanding balances, the more you’ll save on interest.

You can do the same with credit card rewards. Redeem them as statement credit to reduce your balance faster.

If you still need more extra cash, take on a side hustle. Look into jobs like DoorDash and TaskRabbit that let you make your own schedule and don’t take up a lot of time. Any extra cash you can find will help you get out of debt faster.

Frequently asked questions

1. What is the best strategy for paying off credit card debt?

The best way to pay off credit card debt depends on your situation. If you need motivation, try the snowball method and pay off the smallest balances first. If you want to save on interest, use the avalanche method to focus on cards with the highest interest rates.

2. How can I get help with credit card debt?

You can seek help from nonprofit credit counseling agencies, which offer free or low-cost personal finance advice and debt management plan s. Creditors may also offer hardship programs or payment plans.

3. What are credit card debt relief programs?

Debt relief programs help reduce or manage what you owe. Options include consolidation loans, debt settlement, debt management plans, and hardship programs. All of these aim to lower the amount you owe and make payments more manageable. Be cautious, as certain debt relief programs cost money and can impact on your credit score.

4. What if I can’t afford my credit card payments?

Call your card issuer and ask for a hardship or payment plan you can afford. Many creditors are willing to work with consumers. You can also contact a credit counseling agency and enroll in a debt management plan.

Bottom line

Paying off debt is challenging, but you can do it. Set yourself up for success by having a plan, celebrating small wins, and avoiding common pitfalls. It will take time, but you can repay what you owe.

Once there, avoid falling into old habits. Stick to your budget and good spending habits that got you out of debt in the first place.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Paying Off Credit Card Debt? Stop Making These 9 Mistakes

Key takeaways

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Making only minimum payments