4 Tips For Managing Your Credit Card Debt

According to a recent survey by creditcards.com, nearly half of Americans carry a credit card balance. Since even a small balance will accrue interest and grow over time, everyone with a balance should have a plan for managing their debt to ensure it doesn’t get out of control. The key to establishing a debt management plan is a four-pronged attack that I describe to my clients using the acronym AMMO (veterans love acronyms), which stands for awareness, managing spending, and managing payments and other options. Using the following four steps can put you on track to managing your debt efficiently and perhaps even help you achieve some larger financial goals.


The first step in creating your debt management plan is to review your current financial situation and create a realistic budget. The goal of building your budget and reviewing your spending is awareness, not punishment. When you’re creating your budget, make a list of all credit cards and their interest rates. This debt list will come in handy later. Once you’ve made your budget, you’ll have the lay of the land and know whether any changes are needed.

Managing Spending

Once you’ve created your budget, if additional savings is necessary, a good strategy is to make small cuts that you won’t notice individually, but that adds up significantly. You should avoid altering your entire standard of living but instead find small savings that cause little to no pain. The importance of starting small when managing spending cannot be overstated because it can be the difference between following through and throwing in the towel.

Note: Building an emergency fund of three to six months of living expenses is critically important to managing debt since a large unexpected expense can significantly set you back. (Read this article on creating an emergency fund)

Managing Payments

Now that you know how much you can contribute to paying your debt, the next step is to select a payment strategy. I prefer the following two strategies:

  • The Debt Avalanche Strategy: This method prioritizes the credit card with the highest interest rate and saves you the most money. Use your debt list and apply most of the funds you have allocated to paying off your debt to the card with the highest interest rate while paying the minimum payment on the rest of your cards. Once you pay off the first card, you’ll roll over the amount you were paying on the first card to the second and continue this process until all of your credit cards have been paid. As you can probably tell, this strategy is named Avalanche because as you pay off each card, the amount of cash available to apply to the next card grows exponentially. I suggest using this method if you have the discipline to stick to your plan, even when there is no immediate win.
  • The Debt Snowball Strategy: Whereas the Debt Avalanche strategy prioritized cards with the highest interest rate, the Debt Snowball strategy prioritizes the cards with the smallest balance. This strategy focuses on increasing your motivation by allowing you a small win as soon as possible. When using this method, you will apply most of your funds to the card with the smallest balance while paying the minimum payments on the rest. Similar to the Avalanche strategy, once you pay off the first card, you will roll over the amount you were paying on the first card to the second card. This strategy might be right for you if you need to see a small win up front to keep going.

Other Options

When your debt starts to get out of hand, paying it down can be difficult. If you find yourself struggling to stick to your debt management plan, you might want to explore additional options. However, you must understand the advantages and disadvantages of any option you are considering. Here are a few of the most common options:

  • Contact Creditor: You can contact your credit card company and ask for a modified payment plan. They have no obligation to agree, but the worst that can happen is they say no.
  • Debt Consolidation: This strategy involves taking out a new loan, such as a new credit card or home equity loan, and combining all your debts into one. Since this method involves a new loan, you might be able to lower your interest rate; however, your credit score will be a significant factor. Although the possibility of lowering your interest rate is an advantage of this strategy, this option is not without risks. For instance, if you take out a loan using your home as collateral and fail to pay the loan, you might lose your home. Moreover, this option does have costs, such as transfer balance fees and loan origination fees.
  • Debt settlement: This method involves a company negotiating with your creditors to allow you to pay an amount that is less than you owe. As great as this option sounds, there are significant risks. For instance, even though you pay the debt settlement company a fee, your creditors have no obligation to agree to new terms. Furthermore, since debt settlement companies typically instruct you to stop making payments to your creditors while you are in the program, you can find yourself in hot water if things don’t work out. (Read more about these options on the FTC.gov website)

Final Thoughts

Whether you have a large or small credit card balance, having a plan to manage your debt is the smart thing to do. Although creating and sticking to your plan will likely involve some sacrifice, it can provide the security and financial confidence we all want. If you find that your debt is getting out of hand, ensure you do your homework before using other options that might have additional costs and risks. Finally, if you don’t feel confident in creating a debt management plan, or if you would like an expert opinion on your financial situation, you should consult with a qualified financial planner.

Author: Jose Armenta, MsBA, CFP®, ChFC®, EA

Hi, I’m Jose Armenta, a Certified Financial Planner practitioner. For over 14 years, I have worked with or among federal employees, from serving in the Marine Corps to my stint as a police dispatcher and now as a financial planner specializing in helping FERS federal employees. In that time, I have spoken to hundreds of federal employees about their benefits and retirement. Helping federal employees maximize their benefits, reduce taxes, and live confidently is a passion of mine. When I am not perfecting financial plans, you’ll find me at the shooting range, playing the drums, or breaching blanket forts with my three little ones.