How to pay off $11,000 in card debt in three years

It's not impossible if you've got about $400 a month to spare

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I owe about $11,000 in credit card debt. Can you suggest a plan on how to pay my debt in two or three years? First card: $7,500; second card: $3,200; third card: $500; and fourth card: $400 -- Nick

Answer for the expert

Dear Nick,
Congratulations on your goal to pay off your debt within three years. I believe it is an attainable goal. And your timing is great. Carrying a large debt load is never a good idea, and it's an even worse one in a down economy with an unstable job market.

In general terms, if you have a reasonably decent interest rate on your accounts (say, around 12 percent), you will need to apply approximately $370 per month to pay off your credit card balances of $11,000 within three years. If you have more than that to put toward the goal each month, all the better -- it just means it will take you less time to be credit card debt free. Paying off debt is a personal matter and one that does not necessarily have one set way as the best way to go about it.

You have four different accounts. Some people like to see progress paying off their debt as quickly as possible. If you are of the same mind, I would recommend paying off the accounts with the lowest balances, in your case the $500 and $400, first. Then move on to the larger balance accounts. You would do this by paying the minimum payment on all your other accounts and applying everything left of your monthly debt reduction budget to the lowest balance account until it is paid. You would then move on to the next lowest balance account, ensuring that you make the minimum payments on your other accounts each month.

Other people hate to see how much money they are paying in interest charges each month and choose to tackle the balance with the highest interest rate first. You would apply the same principle as above to pay off your high interest rate account first. Make at least minimum payments on all other accounts and apply the bulk of your budgeted amount to the highest interest rate account. Yet another option is to pay the account with the highest balance off as quickly as possible.

One thing that you and anyone else wanting to pay off balances in a set amount of time need to keep in mind is that you will likely need to make more than the minimum payment on all your accounts while concentrating on paying off one particular account quicker. If you make minimum payments that decrease each month, you may not meet your time line. For example, if you choose to pay down your $7,500 account as quickly as possible, you will need to make a consistent payment of $100 each month to your $3,200 balance rather than the minimum due to meet your time frame of three years.   

A couple of thoughts to leave you with -- if your interest rate is not reasonable and is instead horrible (30 percent), you will need to budget approximately $100 more per month to pay off your balances in three years. You might consider moving the balances to a lower rate card if you can. I'd also like to see you adding at least a small amount to an emergency savings account each month during your three-year pay off period, so I hope you can avoid adding to your balances with an unexpected expense. Once your credit card balances are paid, continue making that monthly debt reduction payment into your savings until you reach at least six months of living expenses.

Take care of your credit!

See related: Debtor determined to be debt-free in 2010 needs a plan, Micropayments: A strategy to cut credit card debt, 7 simple ways to create an emergency savings account

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Updated: 11-23-2017