Aja McClanahan, a Chicago-based writer, and her husband were staring down $120,000 in debt — about $20,000 of it credit card balances — and realized they needed to clean house. Literally.
They found less expensive housing arrangements, and along the way in those seven years that they carried the debt, they also became meticulous about budgeting. They negotiated some of the debt with a creditor, as well, and in 2013, the couple paid off the six-figure total.
That tidier balance sheet helped them tackle other goals.
“Currently, we are very debt-averse,” says McClanahan, writer at finance blog Principles of Increase. “The only exception is using small amounts of debt to finance our real estate business.”
If you, too, need to sweep away piled-up debt, here’s how to employ similar cleansing strategies.
1. Unpack your motivation
McClanahan kept a goal in mind.
“Every day I was fantasizing: ‘When we pay off debt, we’re going to go to the Caribbean,’” she says.
After paying it off, the couple did just that, heading to the Dominican Republic in 2015 for a two-and-a-half-week vacation with their two children.
That experience conquering debt also gave the couple confidence to envision new goals, some of which, yes, required taking on debt again — but with a plan.
The couple financed bathroom renovations for their rental property in 2017 by charging over $2,500 to their credit card. They were able to pay off the balance a few months before the end of the 0% introductory interest period on a balance transfer card.
“It was great to know that we could see a project through while getting it paid off pretty quickly and with no interest,” McClanahan says.
2. Prioritize the polishing
The average U.S. household with credit card debt has an estimated $6,929 in revolving balances, or balances carried from one month to the next, according to a 2018 NerdWallet study. If your debt is spread out over several accounts, prioritize in a way that makes sense for you.
McClanahan and her husband took the “debt snowball” approach, which calls for paying down smaller balances first to gather momentum with quick wins.
“If you feel more motivated to attack the lowest balance, then by all means do that,” says Thomas Nitzsche, spokesman at Money Management International, a nonprofit credit counseling agency. “If that’s what’s going to motivate you, then that’s what’s going to help you remain successful.”
Others may prefer to start by targeting debts with the highest interest rates, known as the “debt avalanche” method.
Either way, you’ll need to free up cash to put toward those balances. Sort through your monthly statements for expenses that might be weighing you down: a higher-than-necessary cable bill, a membership you no longer use, etc.
Windfalls such as a tax refund or bonus can also help, either toward paying down balances or building an emergency fund you can turn to instead of a credit card.
3. Choose the right cleaning solution
Depending on your credit score, you may qualify for a few debt-cleaning options:
- Balance transfer credit card. With a good credit score of 690 or higher, you can transfer debt from a high-interest credit card to one with a lower annual percentage rate. To pay off her bathroom renovation, McClanahan looked for a balance transfer credit card with no annual fee and a long 0% introductory APR. Such cards typically charge a balance transfer fee — from 3% to 5% of the amount transferred — although it’s possible to find cards that don’t. For McClanahan, it was worth paying the fee in exchange for the lengthy interest-free period.
- Personal loan. You can consolidate your debt from several credit cards into a personal loan that offers a lower interest rate. Consider one at a credit union that’s easy to join. They generally have lower interest rates than banks do.
- Credit card interest negotiation. If you pay on time and haven’t maxed out your cards, a call to your issuers might get them to lower your interest rate. Some creditors are more flexible than others, but persistence can pay off, Nitzsche says.
- Credit card hardship program. If your debt is spiraling because of circumstances out of your control, ask your issuer about a credit card hardship program. You’ll need a good reason to qualify, such as job loss or illness. It sometimes results in the account being closed, but the issuer might lower interest payments.
- Debt management plan. This option is ideal if your credit score falls below 689 or if you’re three to five years away from paying off your debt. For a fee, a credit counseling agency can facilitate a debt management plan that combines several debts into one monthly payment, possibly with a lower interest rate.