- How to pay off credit card debt: 3 best strategies
- Best ways to pay off credit card debt
- Why it’s important to reduce your credit card debt
- Avalanche method
- Snowball method
- Debt consolidation
- Balance transfer credit card
- Debt consolidation loan
- Final thoughts
- What is the best way to tackle credit card debt?
- 4 ways to tackle credit card debt
- 1. Make a list
- 2. Get a balance transfer credit card
- 3. Get a debt consolidation loan
- 4. Pay off debt with the snowball and avalanche methods
- The takeaway on credit card debt
- Debt Snowball Vs. Debt Avalanche: The Best Way To Pay Off Credit Card Debt
- Credit Card Minimum Payments
- The Debt Snowball
- The Debt Avalanche
- Debt Snowball vs. Avalanche
- If you’re drowning in high interest rates
- Consolidate credit card debt
How to pay off credit card debt: 3 best strategies
Credit card debt creeps up on you quickly. With some of the highest interest rates across all forms of credit, it accumulates fast and can be detrimental to your credit score and financial well-being.
If you realize you’ve gotten in over your head in credit card debt, it’s time to build a strategy to eliminate it. Read on to learn about three effective ways to pay off credit card debt and get your financial life back on track.
Best ways to pay off credit card debt
- Avalanche method
- Snowball method
- Debt consolidation
See related: How to pay off credit card debt video
Why it’s important to reduce your credit card debt
Debt, in and of itself, isn’t always a bad thing. Certain low-interest debt can be an investment that will increase in value and generate income in the long term. Student loans and mortgages are great examples of such debt.
However, that’s usually not the case with credit cards.
It’s important to reduce credit card debt … because credit card interest is compounded daily and can cause your financial growth to remain stagnant.
Dino Selita, president at The Debt Relief Company
“It’s important to reduce credit card debt … because credit card interest is compounded daily and can cause your financial growth to remain stagnant,” explains Dino Selita, president at The Debt Relief Company. “Credit cards are only be meant to be used as a short-term vehicle for borrowing against your cash flow. As a lending product, they will cost more in interest than any other financial product.”
Consider the following scenario: You have $800 in credit card debt on a card with an APR of 18%. You make a decision to pay off this card and stop making purchases on it. However, you only make monthly minimum payments of $25. It would take you 44 months to pay off the balance and you’d spend almost $300 in interest.
Tip: Use our credit card payoff calculator to see how long it will take you to pay off your balance and how much you’ll pay in interest.
Moreover, your credit score can take a hit if you carry high credit card balances. Credit utilization is the second most important factor of your FICO score, and if you use over 30% of your credit line, it will ly hurt your credit.
Additionally, maxed out credit cards can be a red flag to creditors and lenders, who may see them as a sign you’re in financial trouble.
If you have found yourself struggling with credit card debt and are worried that it’s impacting your credit, don’t panic – there’s a way out.
Pick one of the strategies that have helped many people pay off credit card debt.
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The avalanche strategy is a popular way to eliminate credit card debt. It focuses on paying off credit cards with the highest APR first in order to save as much as you can on interest.
“So, if you have one credit card with a 15% interest rate and another with an 18% interest rate, you would pay off the debt accumulated on the 18% credit card first,” explains Freya Kuka, founder of the personal finance blog Collecting Cents. “This saves you money in the long run by lowering how much you are wasting on multiple expensive interest payments. This method works well for disciplined people who want to be debt-free with the most effective strategy.”
Make sure you’re still making minimum payments on your lower interest credit cards as well to avoid late fees and damage to your credit. Then, when you’re done paying off the card with the highest interest, move on to the second-highest APR and repeat until you’re fully rid of credit card debt.
Paying off credit card debt can be mentally exhausting. You may feel you’re spending a big chunk of your income trying to eliminate it, yet all of your accounts are still showing a balance.
If you’re worried this might make you lose motivation to go on, look into the snowball method. It works by the same principle as the avalanche method, but instead of focusing on high-interest credit card debt, you concentrate on the cards with the lowest balances.
If you know that seeing immediate progress is necessary for you to continue, the snowball method might be an excellent option.
“My husband and I used the snowball method to get completely debt, including our mortgage. In all, we have paid off over $260,000 in debt,” said Stacie Heaps, personal and family finance writer at Families for Financial Freedom.
“I am a big fan of the snowball method because it gives you quick wins at the beginning that help you get motivated and stay motivated to get debt.”
Keep in mind that using this method is ly to save you less on interest compared to the avalanche strategy.
Nevertheless, if you know that seeing immediate progress is necessary for you to continue, the snowball method might be an excellent option.
The idea behind debt consolidation is combining high-interest balances and converting them into low-interest debt, such as a personal loan or another credit card. There are a couple of ways to do it.
See related: Guide to Tally: Consolidate card payments to beat credit card debt
Balance transfer credit card
Balance transfer cards allow you to transfer a high-interest credit card balance to a new card with a temporary 0% APR. The no-interest period typically lasts between 12 and 18 months.
If you pay off the balance during that period, a balance transfer card can be an amazing deal. You won’t just lower the interest – you’ll eliminate interest charges for the length of the introductory period.
However, if you don’t finish paying off the debt by the end of that period, the card’s regular APR will kick in, and it may be higher than your current interest rate. To avoid losing money, only transfer the amount you know you’ll be able to pay off in time.
See related: What is a balance transfer and how does it work?
Note that balance transfer cards are typically available to consumers with good and excellent credit. If you know your credit needs some work, you might want to choose a different method of reducing debt.
Tip: If you don’t think you’ll qualify for a balance transfer card, take a look at the cards you already have. You might be able to get a good offer and transfer your high-interest balance onto your existing card if you haven’t exhausted its credit limit. Make sure to read the card’s terms carefully before taking this step to be aware of the rates and other conditions.
Debt consolidation loan
Another option for those with good credit is a personal loan. When you use this method, you take out a loan with an interest rate lower than that of your current debt. Once you apply it to your credit card balances, you’re left with a single fixed monthly payment to take care of.
See related: Consolidation loan vs. balance transfer vs. DIY payment plan
This makes a personal loan not only a smart way to pay less in interest but also a convenient one. It’s easier to keep track of one loan than a few credit cards. Plus, having to make one payment a month instead of many can help you alleviate some financial stress.
While a longer-term personal loan can reduce how much you pay a month, aim to pay off the loan as soon as you can. Longer repayment terms may lead to paying more in interest over time even if your new interest rate is lower.
Credit card debt can be quick to accumulate and tough to get . Don’t let it bring you down: Pick a strategy that you think you can stick with, and keep reducing your credit card balances. With enough discipline and patience, you’ll finally start seeing zeros on your credit card statements.
The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.
What is the best way to tackle credit card debt?
U.S. consumers are making headway with their credit card debt, but there's still a long way to go to becoming debt-free.
Overall U.S. cardholder debt fell by $10 billion in the third quarter of 2020, following a steep $76 billion decrease in the second quarter, according to the New York Federal Reserve. Their analysis noted the global COVID-19 pandemic and the resulting government lockdowns fueled more debt pay downs as consumers limited their spending.
Despite the progress, Americans still face an uphill climb to clear their balances, especially with outstanding credit card debt standing at $756 billion, according to Experian, and average household credit card debt at $5,315.
“Most of the women I work with got their first credit card in college before they learned to budget or spend intentionally,” said Erin Gobler, a Madison, Wisconsin-based financial coach for millennial women. “Unfortunately, many of them end up overspending and carrying that debt with them for years.”
4 ways to tackle credit card debt
If you're looking to pay off debt, you may want to start by using a free credit monitoring service. Credible can introduce you to credit monitoring services that alert you to potential issues — fraud — and give you a thorough look at your credit score and activity.
After signing up for a credit monitoring service, here are four other ways to tackle credit card debt.
- Make a list
- Get a balance transfer credit card
- Get a debt consolidation loan
- Pay off debt with the snowball and avalanche methods
1. Make a list
The first step should be sitting down with a spreadsheet and making a list of each of your debts, including the lender, balance, interest rate, and minimum monthly payment.
“This forces you to look at the big picture of your debt rather than facing each one as an individual monthly bill,” Gobler said.
Once you make your list and determine a payment strategy, you may want to consider some loan options. Multi-lender marketplace Credible has information on various types of credit cards, including balance transfer credit cards (which you'll learn about more below). Use their free tools to compare balance transfer cards and buy yourself some time to pay off debt.
2. Get a balance transfer credit card
Transferring an existing credit card debt to a new credit card offering 0% interest on balance transfers is another good option to explore.
“Getting a 0% balance card will give you more time to pay down your credit card balance without interest eating up your monthly payments,” said Andrea Woroch, a money-saving expert and founder of the personal finance website AndreaWoroch.com. “Some cards even come with a cashback bonus for signing up.”
Visit an online marketplace Credible to view multiple balance transfer credit card options in seconds.
HOW TO GET A BALANCE TRANSFER CREDIT CARD
3. Get a debt consolidation loan
You can also make paying off your debt more manageable by taking out a debt consolidation loan.
“ debt refinancing, a debt consolidation loan is a personal loan that lets you combine all your existing credit card balances into one monthly payment,” said Rafael Rubio, president of Stable Retirement Planners, in Southfield, Michigan.
Explore your personal loan options on Credible, where you can use the platform’s personal loan calculator to fund the best personal loan rates.
9 OF THE BEST DEBT CONSOLIDATION COMPANIES
4. Pay off debt with the snowball and avalanche methods
If you have multiple credit card debts, you can leverage a paydown strategy called the “debt snowball method.”
“In this case, you pay down a single credit card balance at a time and make the minimum payments on the rest of your cards,” said Rubio.
“The strategy is to pay off your smallest balance first and then go on to the next smallest balance. This is a good method to give yourself a boost by tackling one card at a time.
The small wins of paying off a card will feel good and motivate you to pay off the next one.”
The trick is to hide the cards you pay off. “Don’t start another balance before you pay off the others,” Rubio added.
Debt avalanche Cardholders can also pay down debt using the debt avalanche method.
“This strategy is the debt snowball method, except you start paying down the balance with the highest interest rate first,” Rubio said. “While it may take you a little bit longer to start to see progress this way, you'll save money overall because you'll pay less in interest charges over time.”
DEBT SNOWBALL VS. DEBT AVALANCHE: WHAT'S THE DIFFERENCE?
The takeaway on credit card debt
The major takeaway here: there are easy ways to pay off debt and save you money in the end. It's always a good idea to use a credit monitoring service to ensure you're aware of your credit profile.
The last tip on curbing card debt? Don’t keep using your credit card as you pay down the debt.
“If you’re still using your card, it becomes more challenging to pay down your card balances,” Woroch said. “Instead, commit to stop using your card and make a plan to get debt.”
Debt Snowball Vs. Debt Avalanche: The Best Way To Pay Off Credit Card Debt
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
If you’re in credit card debt, first things first. Take a deep breath. You are not alone.
According to the Consumer Financial Protection Bureau, Americans have about $1 trillion in credit card debt. Borrowers have paid $104 billion in interest in the past year alone.
In this article we’ll cover the two popular ways to tackle credit card debt–the debt snowball and the debt avalanche. They boil down to two schools of thought. One relies on psychology as a motivator (debt snowball) and the other focuses just on the numbers (debt avalanche). There are pros and cons to both approaches, as you’ll see.
To start, however, we must first look at the perils of making just the minimum payment on a credit card.
Credit Card Minimum Payments
Credit card issuers use different formulas to determine the monthly minimum payment. In general, the minimum payment will be around 1 – 3% of the outstanding balance. As a result, the minimum payment on $10,000 in credit card debt will be just a couple hundred dollars.
This relatively small payment is attractive to many. A recent study found that 29% of American credit card accounts regularly make payments at or near the minimum. This creates a big problem.
Making just the minimum payment on a credit card is expensive. A $10,000 balance at 18% interest with a 2% minimum payment generates a monthly minimum payment of just $200.
Make just the minimum payment, however, and it will take more than 30 years and cost over $35,000 to pay off the debt, according to this Bankrate calculator.
We can do much better using either the debt snowball or avalanche methods.
The Debt Snowball
With the debt snowball, you list all of your debts the outstanding balance. You make the minimum payment on each card. Then you put any additional money you have toward the card with the smallest balance. Importantly, you do not consider each card’s interest rate. Instead, you focus just on the outstanding balance.
The theory is that by focusing on the smallest balance first, you’ll pay it off quickly. This in turn will motivate you to continue paying off your debt. Once the smallest debt is paid off, you direct the money you were paying on that debt to the card with the next smallest balance. This process continues until all of your credit card debt is paid in full.
Depending on your personality, paying down a small amount of debt before you tackle larger bills can be a big boost. For people who are emotional about their finances, this can be a great strategy.
The Debt Avalanche
With the debt avalanche, the focus shifts from the smallest balance to the highest interest rate. All extra funds above the minimum payment go to the card with the highest interest rate. Once paid in full, money is then directed to the card with the next highest interest rate.
From a financial perspective, paying off your higher interest rate balance first is the most prudent course of action. Obviously, you should continue to make minimum payments on all credit cards while you do this, but you should prioritize getting your higher interest rate debt down to zero.
The result is that you get debt paying the least possible amount of interest. It may also mean, however, that it takes a long time to knock out that first debt.
Debt Snowball vs. Avalanche
It could be that your higher balance card also happens to be the one with the lower interest rate, to which we say, lucky you! In some cases, there might not be that much of a difference between the avalanche and snowball method. Use this free debt avalanche/snowball calculator to see if there is a big discrepancy between these payment strategies and decide which one is right for you.
If you’re drowning in high interest rates
If you’re committed to monthly payments but still drowning in credit card debt thanks to high interest rates, there are additional options. Both of these do not by any means erase debt, and also come with their own setbacks. They might, however, help you with high interest rates if either the snowball or avalanche method aren’t working fast enough.
Consolidate credit card debt
If the avalanche and snowball method have you spinning and still paying high interest rates on multiple cards, you can consolidate your credit card debt with a credit card consolidation loan or small personal loan.
This can be a great way to cover credit card debt. Your debt is consolidated into an unsecured personal loan that is then repayable in three to seven years. Although you will still have the same amount of overall debt, you ly won’t be paying exorbitant interest rates along the way.
Since all cases are different, use this calculator to see if a small personal loan is the right path for you. Another benefit of a small personal loan is that if you qualify, it can help boost your credit score.
A balance transfer card offers you the possibility of 0% interest rates for a set amount of time, usually between six to 21 months. You can transfer your high-interest credit card debt to this card, meaning that you’ll have a reprieve from interest rates and be more able to tackle your balance.
One caveat is that these cards usually require a high credit score. If you’ve been remiss about monthly payments or have damaged your credit, it might not be an available option.