Figuring out how to pay off multiple credit cards with a limited budget can be difficult.
I struggled with credit card debt after buying my first home. It was so easy to buy stuff for the house and just put it on the card.
But before long, I found myself in over $50,000 in credit card. And after I dug myself out of that hole, I did it again.
I finally taught myself how to use credit cards responsibly and now I even have a perfect credit score.
When you find yourself with that much debt, the outlook can be pretty bleak. It is hard to see a way out.
However, there are some strategies discussed below that you can use to pull yourself out of credit card debt.
Full disclosure: I am not a professional financial advisor. The information provided here is my opinion and an example of my personal experience in dealing with credit card debt.
Dealing with credit card debt
If you are struggling with credit cards, it is helpful to know that you are not alone.
According to Statista, credit card debt in the United States was approximately 870 billion dollars in the second quarter of 2019.
$870,000,000!
If that was spread equally among every person in America, each person (including children) would owe over $2,500.
However, it isn’t spread equally. And since you’re reading this, I’m guessing you owe a bit more than that.
But the good news is that you can overcome that debt. And learn to use credit cards responsibly and to your advantage.
Paying off multiple credit cards
While there are other methods of addressing credit card debt, I focused on two:
- Cards that had zero-interest balance transfer offers
- The snowball and avalanche methods
Using the two of those, I was able to overcome my debt.
Other options for paying off multiple credit cards include consolidation loans and debt relief/forgiveness. Consolidation loans can be used in a similar way as to how I used zero-interest cards.
However, I personally wouldn’t recommend debt forgiveness if at all possible. It can have a more prolonged, negative impact on your credit.
I also tend to believe that if you get yourself into a situation like that, you need to get yourself out by paying your debts.
With that, I’ll discuss zero-interest credit cards and the snowball/avalanche methods and then go into a bit more detail on how I used them.
Zero-interest credit cards
The ability to leverage zero or low-interest credit cards is going to depend on your credit score, your income, and the credit cards you currently have.
These zero-interest credit cards typically include:
- A balance transfer fee (mine were in the range of 2-5%)
- A promotional period (anywhere from 6-18 months) after which the card reverts to the regular interest rate
I had a decent (not great) credit score when I had accumulated my credit card debt. My credit score allowed me to still find credit cards with 0% introductory interest rates on balance transfers.
I think I opened at least 4 or 5 new cards to get a low introductory rate. But the great thing about a few of the cards was that I continued to receive balance transfer offers.
I was able to use those offers to move money around to save on interest rates while paying down my total balance.
Now, as I discussed earlier, those balance transfers included a balance transfer fee. However, the fee I paid was much less than what would be charged in interest if I didn’t move the balance.
Additionally, opening new cards will result in hard inquiries on your credit report. But those won’t be as impactful or long-lasting as missed payments or declaring bankruptcy.
The snowball and avalanche methods
When you make a snowball, you typically start with a small amount of snow and then roll it in the snow to make a larger ball. This is analogous to paying off the smaller balances first.
With an avalanche, a large amount of snow is moving down the mountain and becomes smaller as you move down the mountain. This is analogous to paying off the higher interest rates first.
When paying off multiple credit cards using these methods, you pay off the card(s) with the smallest balance (snowball method) or the highest interest rate (avalanche method) first. You pay it off with the highest payment you can make each month.
Regardless of the method you use, always ensure you are paying the minimum payment on every card you have on time every month!
Once the first card is paid off, you add that total payment to the card with the next lowest balance (or highest interest rate). As each card is paid off, the amount you are paying on the next card is larger, allowing you to pay off the balance quicker.
When using any strategy, it is ideal to have your lowest balances on the cards with the highest interest rates. Combining those methods will help you save on how much interest is charged.
Combining the two
If you are in a situation that allows you to combine the two strategies discussed above, you can avoid a boatload of interest charges.
Here is how I did it:
- Transferred as much of my high-interest balances to zero-interest cards as possible
- Paid off the remaining high-interest balances as quickly as possible
- This is actually a combination of the snowball and avalanche methods. Moving as much as possible to zero-interest cards and paying, as aggressively as possible, on the remaining balance on higher interest cards.
- Once the non-zero interest cards were paid off, I focused on the zero-interest cards with the shortest promotion time remaining
- If I wasn’t able to pay off a credit card before the promotion expired, I’d transfer it to a different card with zero-interest
My results in eliminating credit card debt
The chart above shows my credit card balances over several years.
Here are some of the highlights (or lowlights) from the chart:
- The first big dip was due to moving money around to ensure we had money to cover our house purchase.
- Not ideal, but we were waiting on some reimbursement money that we received and paid most of it back.
- After that initial dip, the majority of the increased debt was due to purchases after buying a new house.
- After that, the long road to paying off the credit cards began.
- You can see several times where the balance of one card would go down while another (or others) went up.
- Those were balance transfers.
- But you can also see a number of times where one card was paid off entirely.
- You can see several times where the balance of one card would go down while another (or others) went up.
- Around 2013, I had paid off a majority of the credit card debt. So the logical move (actually illogical)? Move again. Which resulted in another spending spree…
- This time was a little different.
- 2014 was spent paying down the balances using the same principals as before.
- But in 2015, we were fortunate to receive large bonuses at work and put it all towards paying off the remaining debt.
- This time was a little different.
This scenario is a pretty extreme example, and I hope you are not in this bad of a situation with credit cards.
But if you find yourself in a mountain of debt like that, you can recover from it.
Lessons learned
Before you can tackle your credit card debt, you need to get your spending under control.
As long as you continue spending more than you can afford and don’t leave enough to pay towards your cards, you will be in a downward spiral.
I taught myself to think about purchases differently.
If I don’t have the money to pay for something upfront, it really has to be a necessity.
As you can see above, it took me almost five years to eliminate my mountain of debt the first time. I could have done it faster, but I am not the most frugal person.
I actually like to spend my money and enjoy life. The key there is “my money,” not what my credit cards allow me to spend.
I needed to change my priorities a bit. When you pay off your credit card balances, you can use that money you’ve been paying each month to live your life without creating more debt.
My current relationship with credit cards
After dealing with that much debt and taking so long to eliminate it, you may think that I’ve cut up all of my cards and thrown them away.
That actually couldn’t be further from the truth.
First of all, I don’t recommend closing your accounts after you pay them off.
- 30% of your credit score is based on your credit utilization
- The more available credit (that you aren’t using) can help improve your score – this doesn’t mean open new cards for more credit, just don’t close old ones because…
- 15% of your credit score is based on length of credit history
- Keeping your accounts open in good standing will help your credit score over time.
Responsible use of your cards can really help your financial help. And by the way, another 35% of your score is based on payment history. That is why I stressed always making your minimum payments on time.
But back to my relationship with credit cards.
I use them all the time!
Reward cards
I hardly ever use cash anymore. The best thing about using credit cards responsibly is the rewards that come with cards today.
Whether you like to travel, receive product rewards, or to simply get cash back, there is likely a card for you.
I used to use a Sony credit card exclusively. Over the years, I redeemed my points for several nice TVs, a surround sound system, a stereo (showing my age…), several cameras and camcorders, among other things.
When I decided to change to a cash back credit card, I was even able to redeem those points for hundreds of dollars of Target and Lowes gift cards.
But I pay my credit card balance in full each and every month. And I have my card set up for automatic payments for the full statement amount, so I don’t have to worry about missing a payment.
Summary
Getting out of credit card debt can seem impossible at times.
But with the right mindset, not only can you overcome your debt, but you can teach yourself to use credit cards in a way that is actually beneficial to you.
Have you struggled with credit card debt? Are there other strategies you used to overcome it? Please share in the comments below. It may just be what someone needs to make a considerable improvement in their financial health.
