How to Pay off Credit Card Debt in any Financial Situation

Paying off credit card debt is an important financial priority for anyone who has it. The interest rates can get out of control quickly, and it only gets worse with time. Many consumers with credit card debt turn to places like the Internet for help, tips, and tricks on ways to pay it off. Unfortunately, there just isn’t a one-size-fits-all approach to dealing with credit card debt, and the answer for how to handle it can vary greatly, based on your specific situation. This means that when you look online for advice, you might come across some ideas that are really awesome and sound great, but they actually aren’t a good fit for you.

That’s where we come in.

We have done some extensive thinking about the different types of credit card debt situations that face consumers. We’ve tried to think of particular scenarios where the advice can really change and you may need to take a different approach. So we’ve written some ideas to help you pay off credit card debt, based on a variety of categories. You can use this guide by choosing the categories that are right for you. In many cases, you will need to look at several to get the most accurate recommendations. For instance, if you have a low debt-to-income ratio but are unemployed, then just reading the section on low debt-to-income ratios won’t give you a good idea of what to do. You should still read it, but you also need to read the section on unemployment. You get the idea. Use the table of contents below to visit the sections relevant to you. And please, let us know how we did and what we missed in the comments section.

Scenarios and Categories

Stage of Life
 I. Young Adult
   Student Loans
 II. Mid-Life
 III. Nearing Retirement or Retired
-A note about marriage
-A note about divorce
-A note about employment

Debt to Income Ratio
 15 percent and under
 Between 15 and 20 percent
 20 percent and above

Account Standing
 I. Behind on Payments
 II. In Collections

How Much you Can Pay
 I. More than the Minimum
   Self-pay Methods
     The Ladder Method
     The Snowball Method
 II. Minimum Only


Stage of Life

During different stages of life we will have different priorities, different needs, and different plans for ourselves and our families. Because of this, the stage of life you are in can impact what approach you should take with your debt. Let’s see what additional challenges people face at different times in life, starting with young adults.

Millennials Credit Score

Young Adult

Having credit card debt when you’re a young adult is not much fun. There are so many other things you want to do, like party with friends, travel the world, and…pay off your student loans. Ok, so you’re probably not very interested in that last point, but you get the idea.

This is a transitional stage of life, and debt will really hold you back. You may not get a job right away after graduation, and even if you do it may not be high-paying. And, truth is, you are going to have student loans to pay back. Typically, these loans will have lower interest rates and better terms (unless you are stuck with a lot of private loan debt) but they are still obligations you need to meet. The key thing here is to realize that credit card debt should be the priority, because its high interest rates pose the greatest threat to your future.

If you are comfortable with what you owe each month, then start thinking about how you can pay more than the minimum. The key is to increase your income and/or decrease expenses. Some great ideas for young adults specifically include living with parents, downsizing to a cheaper apartment, and minimizing meals out, concerts, and other “fun” but expensive activities. You will also want to study up on the section of this article that covers self-pay methods and put one of them to work for you.

Student Loans

If the student loans, in particular, are holding you back and taking attention away from your credit cards, then you will need to make a gameplan for them. In these situations, it may be best to enroll your federal student loans in a repayment program. The graduated repayment plan is a popular option for recent graduates, because the payments increase over the course of ten years. The idea here is that your income will increase during that time too. There are also other income-based programs, and depending on your line of work you might even be eligible for loan forgiveness.

Private loans are notorious for having fewer options repayment options, but you may still be able to get some adjustments that will help you make it month to month. Read our post on How To Pay off Sallie Mae and other Private Student Loan Lenders for more specifics. Again, by lowering how much you have to put toward these loans each month, you can put more toward your credit cards, saving money in interest over time. For more help, consider student loan counseling, so a professional counselor can review your situation and help identify the best repayment programs.

Here is an example of how just putting $100 extra toward your credit card payment each month, can save hundreds. You can achieve this effect by either increasing your income or minimizing expenses. Putting your student loans on a qualifying payment plan would be one way to limit their expense each month, potentially giving you these additional funds.

Balance Interest Rate (APR) Monthly Payment Total Interest Repaid
Credit Card Scenario 1 $5,000 17% $200 $1,217
Credit Card Scenario 2 $5,000 17% $300 $744

A note about employment

If you are one of the many young adults who are struggling to get a job after finishing college, you’ll want to communicate that to your creditors. You will want to explain your situation fully, express your inability to pay clearly, and ask for a hardship program. Also, read the section of this article about being unemployed, which provides additional advice.


Generation X Debt

Ok, admittedly the term “mid-life” is vague. But you fit in this category if you are 10+ years out of college but aren’t yet near retirement age. So, you’re probably between 32 and 55. You might fall into “Generation X” or you might be a young “Baby Boomer.” Either way, you probably have kids or grandkids, own a home, and have settled into the “routine” of life.

Sometimes, however, unexpected events or just the day to day expenses can catch up with members of this group and can lead to burdensome credit card debt totals. In fact, a recent study by the Brookings Institution showed that about one-third of American households live paycheck to paycheck, likely because they weren’t adequately prepared for what was around the corner. And they didn’t have emergency funds set aside, because their cash was tied up into their homes and day to day expenses.

So when you are balancing these responsibilities, how do you pay off your credit cards so the high interest doesn’t hold you back?

That might depend on where you stand. Are you able to pay the minimum monthly payments on your account? Can you pay even more than that comfortably? Or, are you struggling to meet the minimum obligation? (Read this section of the article to learn more.)

Another thing to remember is the importance of your home. If you own a home—likely your largest investment—you will want to keep it safe at all costs. Credit card debt poses a risk because it takes away funds that you could be using to pay down the mortgage. It also might tempt you to do some things that are actually quite dangerous, such as taking out a home equity line of credit and using your home equity as a debt repayment tool.

At this stage of life, there are two things you want to avoid at all costs: losing your home and dipping into your retirement savings. If your home is underwater, the interest rates are unbearable, or you just need help making the monthly payment, you might consider housing counseling.

Your goal will be to create an emergency fund and then begin saving as much as possible after you meet your minimum monthly financial obligations. In most cases, you will then want to put the extra available funds toward credit card debt, using one of these self pay methods.

Retiring Debt

Nearing Retirement or Retired

If you are nearing retirement (within 10 years of your anticipated retirement date) or are already in retirement and have credit card debt, you might be in a tough spot. You are going to want to maximize these last income-earning years, and high interest debt will be a big obstacle to this goal. You’re also going to want to be sure that you have enough to live off of during retirement, but it would be counter-productive to use retirement funds early, and you’d likely have to pay some sort of penalty.

If you find yourself in this situation, or have a loved one in this predicament, you might need to think outside the box. If you own a home, consider selling and downsizing. This could allow you to make a “profit” of sorts on your home and give you money to put toward your debt. It also will help you get rid of old stuff (in a yard sale) that you can’t take to your smaller home. Again, this presents an opportunity to make additional money.

Some other “outside of the box” money saving tricks that might help you have more money for your debt include moving to a more tax friendly area. For instance, just moving one county over can sometimes lead to hundreds, if not thousands, of tax savings. On a similar note, if you are in an older home, you might consider disputing the tax assessment of your property, in order to keep taxes down. And, you might even be eligible for senior tax discounts.

If you are already in retirement or are helping an elderly loved on who is in debt, you should also carefully evaluate how important credit is to your situation. In some cases, credit for the elderly becomes a moot point, such as when access to new credit is not needed and the person does not plan to buy a new home. In these types of situations, it might be better for all involved to avoid any creative solutions to the debt. In these situations it’s probably best to seek the advice of a credit counselor, and perhaps even an attorney so that you can make the right decision for your situation.

A note about marriage

Regardless of your “stage of life” being married adds an additional wrinkle to your debt repayment strategy. As you might already know, financial issues and disagreements are a big contributor to stress in a relationship and are a leading cause of divorce. To keep your daily happiness intact, try doing the following with your partner:

  • Determine the spender and the saver. In other words, understand each other’s financial personalities, strengths and weaknesses.
  • Make budgeting and expense tracking a routine.
  • Plan rewards that each of you will enjoy along the way

There is one silver lining when it comes to credit card debt and marriage—the potential for consolidating your expenses. Now, slow down, we aren’t talking about consolidation in the sense of a consolidation loan. Instead, we mean that it’s easier for two people to make more efficient use of their money. A simple example is grocery shopping and preparing meals. It’s typically more cost-effective to buy items in larger quantities, preparing for two people, than buying smaller amounts for one person. This principle applies to housing, utilities and other monthly expenses as well.

Of course, your potential to acquire debt also doubles when you add another person to the mix. But still, the efficiency of an extra person will help in the long run. Here are some ideas you can implement to put the power of having two people to work for you and help you pay down credit card debt more efficiently:

Downsize your living arrangements. Moving from a two bedroom apartment to a one bedroom or to a studio could save you hundreds each month.

Plan your meals. Like we said, eating for two is cheaper. Take advantage of this by eating meals in, which will be much easier and less stressful if you plan ahead. Also, be a smart grocery shopper.

Share a car. Depending on where you live, having one car for the family might be feasible. You could ride together to work, or one person may be able to walk, bike, or take public transportation. In our article on living without a car, we discussed how in some cities you can save almost $1,000 a month using this approach.

A note about divorce

Credit card debt after divorce is a tricky subject, and how it will affect you really depends on the laws in your state. According to, the majority of states follow “common law rules.” This means that you will likely be responsible for any credit cards in your name or credit cards that you cosigned for.

Some states follow community property laws instead, which hold both partners “equally liable…even if only one spouse incurred the debt.”

So your first step might be to determine which type of law your state follows and then consider how your situation will be affected by the law. It’s important to keep in mind that even if judge’s allocate “responsibility” for a debt to one spouse or the other, the original agreement with the credit card company still applies. In other words, if you cosigned, you might still be held accountable, even if a judge allocates responsibility to your former spouse.

One option that might be available to you is to close joint accounts or have your name (and responsibility) removed from them. The lender may not be willing to do this and will likely require agreement from the other party.

The key to paying off credit card debt in this type of situation is to understand what you are responsible for and communicate clearly. This will be tough if you are dealing with a former spouse, but it’s extremely important. As tempting as it may be to act in spite or hold a grudge, don’t let arguments over small credit charges end up severely damaging your credit score.

A note about employment

Unemployment provides another major “wrinkle” in a debt repayment strategy:
Paying off credit card debt when you’re unemployed…how does that work? Well, it usually doesn’t. If you don’t have a source of income, you aren’t going to have funds to pay the creditors unless you have spare savings set aside. your priorities will be food, clothing, and shelter, but you don’t want your credit to suffer.

Because of this, you need to do two very important things. First, communicate with your creditors. Believe it or not, you will want to tell them the specifics of your situation and document the fact that you do not currently have an income. By doing this, you may be able to get some sort of concessions or even a temporary break in payments.

Specifically, you will want to ask for a hardship program. This is a key term in the credit card industry, and using it can help you get the right person on the phone. Continue calling at different times of the day until you reach someone who seems willing to help you. Again, you will probably have the best chance of success if you communicate your situation entirely. And remember, do not over promise how much you will be able to pay.

Secondly, you will want to actively seek employment. Of course, take advantage of any applicable unemployment benefits, but be sure to look and apply for jobs frequently. Even if the “dream” job doesn’t come to fruition right away, don’t be afraid to take a part-time gig. Working is almost always better (financially) than not working, and it may be a positive experience to add to your resume.

With a part-time job, you may not be able to get ahead on your credit card debt, but you will be much more likely to make the minimum payments. This could help you stay afloat in the short-term. Try to avoid dipping into assets and use this as a last resort only.

Debt to Income Ratio

Your debt-to-income ratio is a key indicator of your financial health. It’s also a tool that lenders use when evaluating applicants for new loans or lines of credit. As far as we are concerned, there are three main tiers for debt to income ratios:

<15% 15%-20% >20%

Where do you stand? Use this quick debt to income ratio calculator to figure it out.

If you’re under 15% then you’re in pretty good shape. This means that you likely have a lot of extra money you can put toward your credit card debt. You might consider using the efficient ladder method to get rid of these debts quickly.

If you’re between 15 and 20% then you’re getting into uncomfortable territory. At this point there a few important steps you need to take.

Budget and track your expenses. We know it doesn’t sound fun, but having this sort of debt-to-income ratio isn’t fun either. If you can see where your money is going, then you can probably find a few places to cut costs (think: eating out, cable bills, and other “wants”). From there, try a traditional self-pay method like the snowball or ladder. Doing this will again give you some much needed structure. Use our debt payoff table (or something like it) and track each month so that you can see the balances go down. After a few months, if you aren’t making progress, then something isn’t right. The interest rates are either too high or you have too many unnecessary expenses lingering. In this case, you will need some outside help, starting with a free budget and credit counseling session and potentially leading to a Debt Management Program to bring down the interest rates.

If you’re already over 20% then we think you are in dangerous territory already. It’s probably best to talk to a professional to get a good idea of what you should do. A credit counselor can help find places to free up additional money in your budget and can help you determine whether you are a good fit for a DMP, which could provide lower interest rates and a structured repayment plan for you.

Account Standing

Depending on whether you are approaching delinquency, are already delinquent, or your account has been sent to collections, your strategy for handling credit card debt might vary.

Behind on payments

If you have missed a credit card payment, the clock is ticking. Your goal at this point should be to regain control and begin making regular payments again before your account is charged off, goes to collections, and becomes a long-lasting blemish on your credit report. This will likely be one of your highest financial priorities if you find yourself in this situation. You will need to think about what is preventing you from making these payments. Is it that too much of your money is going elsewhere, to unnecessary costs? Or, is it that you just don’t have enough income, period? Sometimes, it can feel like a little of both. Perhaps one of the best things you can do at this point is have your budget reviewed by a professional, for free. You can do this by signing up for a free budget and credit counseling session.

You might also want to read some of the other sections of this article, such as the parts on unemployment, debt to income ratios, and making the minimum monthly payments.

Another important step to take at this time is to communicate your situation fully to your creditor. Just by letting them know what is going on and what challenges you are facing can make a huge difference. Doing so might enable you to enroll in a hardship program or develop other arrangements that make your repayment more feasible. This might also “buy you time” so that your account won’t get charged off and sent to collections.

Creditors Memory

In Collections

If you’ve been delinquent for 180 days or more, your bank or lender will likely “charge off” the account, which means that you have defaulted and the account is headed to collections. In some cases, the collection is handled by in-house collectors who work for the same company. In other cases, your account is sold to a third-party.

In either case, you will need to be aware of your rights with debt collectors, and you will need to make sure that they abide by the laws set forth in the Fair Debt Collection Practices Act. You are also still responsible for the debt, although you will have new options available to you. For instance you will likely be able to pay smaller monthly payments or settle for a much smaller overall repayment total. But don’t get too excited about these arrangements; they are coming after severe damage has likely been done to your credit score. You also need to remember not to over-promise how much you can pay when talking to a collector. And, be sure to get any terms of payment arrangements in writing. Read our article about protecting yourself against debt collectors.

How Much you Can Pay

How much you are able to pay each month toward your credit card debt will have a great impact on how you approach it. This section is closely related to the debt to income ratio, employment, and account standing sections of the article. Typically, if you are employed, have a low debt to income ratio, and an account in good standing, you will be poised to pay more than the minimum. If you are struggling in one of these regards, then just making the minimum payments should be your goal.

More than the Minimum

This is the general debt repayment advice for anyone who is capable of making more than the minimum payment. This assumes that you can do so without pulling money from retirement or savings. If you fit into this category, then you need to pick a self-pay method and attack your debt.

Self-pay Methods

In our industry, “self-pay” is a term we use to describe situations where a consumer can pay his or her own creditors directly. We recommend this to clients whose situations aren’t dire enough to really warrant a Debt Management Program. A Debt Management Program is typically meant for those consumers who have extensive credit card debt and multiple creditors. In fact, last year our DMP clients had an average of 9 creditors and $16,834 in unsecured debt.

There are two types of self-pay guided by two very different philosophies: the ladder method and the snowball method.

The Ladder Method

This method is for consumers who want to save the most money in the long-term. They should be self-disciplined and function well without a lot of rewards along the way.

How it works

In this method, you will put your debts in order of interest rate from highest to lowest. You will pay the minimum payment to each account every month and then take your extra available funds and put them toward the account with the highest interest rate. Here is an example of how you would set this up:

Account Name Amount Interest Rate Min. Monthly Payment
Macy’s Card $65.25 18% $20
Private Student Loan $809.21 13% $50
Car Payment $920.83 7% $85
Stafford Student Loan $637.81 5% $40
Stafford Student Loan $466.88 5% $35

Even though the Macy’s card has a small balance, it’s the most dangerous debt you have. Similarly, the private student loan will cost more in the long run than the car payment with a higher balance. Again, this is due to interest. If you want to learn more about this method and see more examples, check out our post on how to pay off credit card debt fast.

The Snowball Method

The snowball method, unlike the ladder method, is not the most efficient. In this method, you will actually pay more interest over the course of the repayment. The good news is that you will get many rewards along the way, so you will stay in good spirits. In this method, you will likely pay off small accounts very quickly, and you will maintain a psychological edge over your debt. Here’s an example of how the method is set up:

Account Name Total Amount Minimum Monthly Payment
Retail Credit Card 1 $75 $10
Retail Credit Card 2 $250 $22
Dentist Bill $300 $35
Retail Credit Card 3 $350 $41
Student Loan $6,000 $155
Car Payment $8,000 $230

In this case, you list accounts by balance from smallest to largest. You pay the minimum monthly payment to all accounts and then put all your extra funds toward the smallest account. If you want to learn more about this method and see more examples, check out our article on the debt snowball method.

Minimum Only

If you’re not able to pay more than the minimum because of your other financial responsibilities, that’s okay. Your goal will be to continue to make the minimum payments each month and to somehow do a combination of expanding your income and minimizing your expenses. By finding a way to increase the amount you put toward your debts each month, you will expedite your repayment, build a cushion each month, and likely have much more peace of mind.

So what can you do? Here is a list of action items we frequently recommend to consumers who are “cutting it close” at the end of the month:

  • Cut your cable bill
  • Cut your cell phone bill or downgrade
  • Look for creative cost-cutting opportunities (cutting your own hair)
  • Have a yard sale
  • Take a part-time job
  • Turn a hobby into a side job

Try to put some of these to work for you so that you can free up some extra money. And, be sure to communicate with creditors if your hardship worsens and you are not able to meet the minimum responsibilities for some reason.


Whew! We have covered a lot! The “long story short” here is that there are many factors that affect how you should approach your debt. There isn’t a one-sized fits all approach. We have tried to cover most of the situations and categories that you should consider. But, we strongly encourage you to sign up for a free budget and credit counseling session for more customized advice on how to maximize your financial potential and put credit card debt behind you!

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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3 responses to “How to Pay off Credit Card Debt in any Financial Situation”

  • Anonymous

    I could not refrain from commenting. Well written!

  • Paying credit cards off was the easiest thing I have ever done, once I learned the debt-snowball method.
    Line all your debts up from smallest to largest.
    Pay the minimum on all of them except the lowest.
    Throw the kitchen sink at it!
    then do it all over again on the next lowest debt, with your new amount rolled-over from the last debt.

    Boo yah!

    Debt be gone!