When I was 24 years old, I had about $3,400 in credit card debt. Maybe that doesn’t sound like a lot, but as a journalist who only made $28,000 a year (about $850 every two weeks), it felt like a mountain of debt.
Initially, I could only afford to make minimum payments. A coworker told me: “You’re not really paying it off. You’re paying Discover for the privilege of holding onto that debt for you.” They were right.
It wasn’t until I landed a higher paying job at the age of 26 that I really started paying it down. Now with my salary at $45,000 a year, I could afford to put $200 a month toward the debt. The minimum monthly payment was about $70 at the time.
The first month, I reduced my debt to $3,200, but here’s where my unconventional strategy comes into play.
Rather than stop using my credit card completely and only using cash or my debit card, I continued using my credit card to make most of my everyday purchases so I could capitalize on cash back rewards.
But if you keep using your credit card, how are you actually paying it down?
After my big payment ($200) at the beginning of the month, I made a rountine of logging into my credit card account every other day and paying off my new purchases. That way my balance went back to where it started at the beginning of the month.
It took me just under 16 months to pay off my credit card balance this way. I accumulated about $340 in cash back during that time, which cumulatively helped me pay off my debt over one month ahead of schedule. And it wasn’t a huge lifestyle change, either.
Let’s break it down
- After my first paycheck of the month, I’d pay $200 on my credit card balance. In month one, this brought my balance to $3,200.
- I used my credit card for most of my purchases throughout the month (not including rent or utilities, as I’ll explain later.)
- Every other day, I paid off any new transactions.
- Even though I would put $20 on it here, $50 on it there, I always logged in and paid it back down to that month’s starting number.
- I accumulated cash back each month, which I then applied to my credit card balance. Depending on the month and the promotional cash back categories, I usually earned $10 to $30 each statement period (though some months I earned as much as $45). I used that “free money” to pay my debt off even faster.
Here’s the thing: There’s no limit to how many times you can pay your credit card balance in a single month.
Instead of waiting to pay your credit card bill right before the due date, you can make as many micro-payments as you want. You can pay it weekly or even every other day like I did. The important thing is to always bring your balance back down to your monthly starting number.
Using this strategy to pay down credit card debt helps pay off your debt over time and get “free money” while doing it
- You reduce the risk of “accidently” spending too much on your credit card: Have you ever looked at your credit card statement and though “How the hell did I spend so much this month?” Paying your credit card balance at least once a week makes it easier to keep up with how much you’re putting on your cards. For me, it eliminates the risk of spending more than I can afford.
- Micro-payments spread out the impact on your checking account balance: You won’t have to worry about a big withdrawal once a month around the same time when rent and other bills are due.
- Reduced interest charges: While constantly paying off new charges won’t completely eliminate interest (you’ll still accrue interest until the entire balance is paid off), it can significantly reduce it. This allows you to put more money towards the principal.
- You earn cash back that you can apply to your debt: By using your credit card like a debit card, you’re accumulating cash back rewards. Apply those to your debt to pay it off even faster.
PRO TIP: Another strategy is setting up autopay for the minimum payment, then manually making extra payments throughout the month.
It took me just under 16 months to pay off my credit card balance this way. I accumulated about $340 in cash back during that time, which cumulatively helped me pay off my debt over one month ahead of schedule. And it wasn’t a huge lifestyle change, either.
Since paying off my balance in full in December 2020, I’ve kept my same strategy in place — except $0 is now my monthly target number every month! It’s a habit for me now: I open up my bank account in one tab and my credit card account in another, pay off the credit card balance and mentally subtract that from my checking account balance. Rinse and repeat across all my credit card accounts.
Keep these things in mind if you want to try this stratregy:
- I picked $200 because it’s the biggest payment I could comfortably afford to make each month. Depending on your income and budget, you might pick a higher or lower number. About 10% to 15% of your monthly take-home pay is a good goal to shoot for.
- Always make sure your big monthly payment is larger than your minimum monthly payment.
- Avoid using your credit card if the merchant charges a high fee to use it. Many property management payment systems and utility companies charge a rather high fee (sometimes 3% or more) if you use a credit card — but no fees for linking your checking account. Earning 2% cash back on a $1,200 rent payment might sound great but it’s literally not worth it if the payment portal charges you a 3% fee.
- If you’re worried about forgetting to login and make small payments, consider setting a daily or weekly reminder on your phone. You can also go old school, and put a Post-It note right next to your computer.
A final thought
This scenario isn’t right for everyone. If your credit card balance is high, say above $10,000, you’re likely better off exploring other options, since the interest accumulated on a balance that size is going to be significant. Instead, you might consider options like negotiating with your credit card company for a lower interest rate, using a balance transfer card with a 0% introducry offer or applying any windfalls (such as a tax refund or a bonus at work) to pay off the debt as quickly as possible.
