How you pay off credit card debt matters


No one would disagree that paying off consumer debt is the right thing to do. In fact, most would say the quicker you can pay it off the better because it will save you more money in interest. Well, it turns out how you pay off debt is more important than you think.

Over the years I’ve worked with many clients who were experiencing financial difficulties due to overwhelming debt. Many of these people had a history of growing their credit card debt, paying them down, and then borrowing on them again.

When I dug deeper, I found that most of them had paid off their previous credit card debt by taking a lump sum from their home through refinancing, taking money out of their retirement (401(k) / IRA) account, or borrowing money from a family member.

Each of these people made a large one-time payment to completely pay off their debt, only to find themselves in a similar, if not worse debt situation a couple of years later.

Why and how did this happen?

We humans have an appetite for pleasure and an aversion to pain. We’ll do anything to increase our pleasure and everything to avoid pain. Debt, especially when it becomes overwhelming to manage, can be very painful.  If you’ve ever received calls from irate credit card company representatives or collection agents you know what I’m talking about.

To end the pain caused by debt, we look for a quick solution. The notion of paying down the debt over a long period of time seems unbearable when you’re under financial stress. That’s why we opt for the quick payoff because it will end the pain.

3 Reasons paying off debt quickly doesn't work 

1. You can’t borrow your way out of debt  

Borrowing is what got you in trouble in the first place. Taking money from your home equity or your retirement will actually cost you more than what you’ll pay the credit card company. Check out this tool to see what borrowing from your 401(k) can cost you.

Borrowing from a friend or family member doesn’t pay off the debt, it just moves it from a company to a person, a person you have a good relationship with. If you’re not able to pay, your relationship will suffer. It’s not worth destroying relationships over money.

2. Avoid the pain, miss out on the lesson

Unwise borrowing that results in debt can be damaging to our finances and our relationships. It’s not a mistake we want to repeat. Getting out of debt the right way can be an invaluable lesson. Unfortunately, when we take the easy way and avoid the hardships and sacrifices necessary to pay off the debt, we miss out on an important lesson, one that will keep us from getting into debt in the future.

3. It doesn’t solve the real problem

If you want to solve the real problem, you must ask yourself, “Why and how did I get into debt?” Without understanding the “why” and the “how” you’re likely to get into debt again. Next time, you may not have the resources to work your way out of debt again.

The number one reason people use consumer debt is that they don’t have the money to buy what they need (food, car repairs, etc.) or what they want (TV, Christmas gifts, vacations). The root issue is not a lack of resources it's a lack of planning and wise money management. A spending plan (budget) will make all the difference.

Having a budget will help you plan for every expense including saving for the future. Not having a budget will cause you to spend reactively and emotionally. You’ll spend on what feels right at the moment, leaving you unprepared for what’s ahead and unable to meet all your needs.


How you pay off your debt matters. Avoid making your financial situation worse through borrowing or looking for the quick and easy way out of debt. There’s no such thing! Instead, make a budget to manage your money and a plan to get out of debt and you’ll be able to eliminate your debt once and for all.

If I can help you on your financial journey please contact me.  I'm happy to help!