How to pay off credit card debt – 3 strategies

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In a Nutshell

If you have credit card debt hanging over your head, there are multiple ways to tackle it. The method that’s right for you depends on how much debt you have, your credit history and what will help you stay motivated to keep chipping away at your debt — even if you feel like giving up.
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3 most common ways to pay off credit card debt

1Snowball methodPay the smallest debts first — focusing on the low-hanging fruit could help you build momentum as you celebrate small victories along the way
2Avalanche methodPay the debt with the highest interest rates first — concentrating on your most expensive debt could help you save money in interest in the long run
3Credit card consolidationTransfer your credit card debt to a balance transfer card or personal loan with a lower interest rate — allowing you to focus on just one monthly payment

The best way to pay off credit card debt depends on your personal situation. As you start this journey, consider three popular strategies.

Choosing the right way to pay down your credit card debt depends on what’s most important to you: Do you prefer to save as much money as possible on interest charges, celebrate your progress every time you pay off another credit card, or simplify your finances?

We’ll walk you through each of these options to help you decide the approach that’s right for you.

What are the three main strategies for paying down debt?

Three big strategies for paying down debt are the snowball method, the avalanche method and debt consolidation. Let’s take a closer look at how each of these strategies works, so you can figure out which one makes the most sense for you.

1. Snowball method

The snowball method is a debt-repayment strategy that focuses on paying down the account with the lowest balance first. As you direct your larger payments toward that balance, you continue to make the minimum payments on your other accounts so you don’t end up paying late fees, hurting your credit or even defaulting.

To get started, list your account balances in order from lowest to highest. Set up your budget to pay the minimum on all your credit card accounts except the one with the smallest balance. For that balance, put as much extra money as you can toward paying it off each month.

When the balance on that account is zero, put the money you were using to pay it off toward the account with the next-lowest balance. Continue until all your credit card balances have been paid in full.

Say you have three credit cards with balances of $700, $1,500 and $4,000. With the snowball method, you’d pay off the card with the $700 balance first. Then you’d move on to the card with the $1,500 balance, and you’d pay off the one with the $4,000 balance last.

Pros of the snowball method

The debt snowball method is effective because you’ll likely see progress quickly. When you get a few quick wins under your belt, you build momentum. This can help you stay motivated to continue working toward your goal of becoming debt-free. Plus, fewer outstanding balances may make the process seem less overwhelming.

Cons of the snowball method

The snowball method doesn’t take into account the interest you’re being charged. If your larger debts are also the ones with the highest interest rates, you may pay more in interest using the snowball method than you would with another debt-repayment strategy.

So if your goal is to minimize your interest payments while paying down debt, another repayment method may be a better choice.

2. Avalanche method

When you use the debt avalanche method, you focus payments on high-interest debts first, while making the minimum payments on the rest of your accounts.

When the account with the highest interest rate is paid off, put the money you’d allocated for it toward the debt with the next-highest interest rate. Repeat the process as many times as necessary until all your credit cards have been paid off.

Say you have three credit cards with APRs of 22%, 18% and 12%. With the avalanche method, you’d pay off the card with the 22% APR first. Then you’d move on to the card with the 18% APR, and you’d pay off the one with the 12% APR last.

Pros of the avalanche method

The biggest advantage of the debt avalanche method is the possibility of saving on interest charges. If you’re concerned about how much interest you’ll rack up while paying down your debt, this method may be a good strategy for you.

Cons of the avalanche method

A debt-repayment strategy that helps you save money may be appealing. But if your account with the highest interest rate also has a large balance, it may take a while to pay it off. And that can work against you in your quest to become debt-free because it may be psychologically demoralizing.

Say you have a $5,000 balance on a card with an APR of 22%. If you pay $300 a month to that account, it will take 21 months to pay it off — as long as you don’t use the card to buy anything else.

Two years is a long time to wait to eliminate your first debt. With the avalanche method, you may not get those quick wins that help create a sense of accomplishment. So it’s easy to get discouraged and lose motivation to keep moving forward.

If you need to see progress quickly to stay motivated, the debt snowball may be a better strategy.

3. Credit card debt consolidation

You can also consolidate your credit card debt.

If the snowball and avalanche methods seem overwhelming, you might be better off combining your credit card debt into one simple monthly payment that doesn’t require any strategizing.

For example, personal loans and balance transfer credit cards allow you to combine balances from multiple credit cards into a single balance and one monthly payment. Not only does this make it easier to keep track of your bills, but you might also reduce your interest payments.

Typically, balance transfer cards offer an intro 0% APR for up to two years, but afterward you could be hit with interest rates that are just as high or even higher than your current cards charge. While personal loans usually don’t offer a promotional APR like this, they tend to charge a fixed interest rate that gives you more time to pay off larger balances.

Personal loan

Personal loans that are used for debt consolidation combine multiple account balances into one loan with a single monthly payment — ideally with a lower interest rate. You use the funds from the loan to pay off your credit card balances, then make the payment on the personal loan each month.

Pros of personal loans: Credit card interest rates are often higher than rates charged on personal loans, especially if you have good credit. If you qualify, you may be able to get a lower rate on a debt-consolidation loan than what the credit card companies are charging.

Plus, a debt-consolidation loan can help simplify your finances. Instead of making multiple payments each month, you need to make only one for all the consolidated debts.

Also, some debt-consolidation loans offer flexible repayment terms, so you can select the one that fits your budget. And some lenders will send the loan payment directly to your creditors, so a debt-consolidation loan can be a convenient option for paying off your credit cards.

Cons of personal loans: You must meet the lender’s eligibility requirements to qualify for a debt-consolidation loan.

So if your credit history has a few dings, you may not be able to get a loan. Or you may only qualify for an interest rate that’s similar to what you’re paying on your credit cards.

It’s also possible you’ll only qualify for a smaller amount and won’t be able to transfer the full amount, which could defeat the purpose if you’re still stuck making payments to multiple lenders.

Last but not least, you could be hit with a personal loan origination fee that adds to the cost of the loan and eats into your funds.

Balance transfer credit card

A balance transfer credit card could let you transfer balances from one or more accounts to a different card. Typically, these credit cards have 0% introductory balance transfer APR offers if you transfer the balance within a certain amount of time after opening the account.

Pros of balance transfer credit cards: If you pay off your balance before the intro period ends, you can avoid paying interest. Knowing you have a limited amount of time before the intro offer expires may help motivate you to pay down your debt quickly.

Cons of balance transfer credit cards: Paying off your debt interest-free may seem like the best option of all, but if you make your payments late, your introductory offer could be revoked. Plus, the promotional period is limited — and if you have a balance when it ends, your account will accrue interest at the card’s regular balance transfer APR.

Also, you may be charged a balance transfer fee when you transfer balances from other cards, and you can only transfer balances up to the credit limit you’ve been offered on the card. If the amount of debt you have is higher than the card’s limit, this payment strategy may not be the best option for you. Also, even if you can transfer your entire balance, it may have a negative effect on your credit scores if the amount you owe is near your limit on your new balance transfer card. So you’ll need to watch out for that, too.

Home equity loan

If you’re a homeowner, you also might be able to borrow against your home’s equity to pay off your credit card debt with a home equity loan.

Pros of home equity loans: At first glance, the math makes sense because your mortgage rate is probably a lot lower than the interest rate you pay on your credit card. So you could save a ton of money in interest, which you could then put toward your credit card debt to pay it off even faster.

Cons of home equity loans: A home equity loan is a risky option because if you fall behind on your loan payments, the lender could foreclose on your home and you could lose the property.

FAQs about the best ways to pay off credit card debt

What is the correct way to pay off a credit card?

If you’re trying to dig yourself out of debt, it’s important to pick the method that resonates with you. For some, that might mean the avalanche method because they don’t want to pay lenders a penny more than they owe them. But for others, that might mean the snowball method, so they can monitor their progress and celebrate all the small victories. The most important thing you can do is pick a strategy that works for you and stick to it. Once your card is paid off, you may consider closing the credit card. But closing a credit card, especially one that you’ve had for a while, may end up hurting your credit.

How do I pay off debt if I live paycheck to paycheck?

If you’re living paycheck to paycheck, paying off your credit card debt might take a little longer, but slow and steady wins the race. So what does that look like for you? If you qualify for a personal loan or balance transfer card, you might be able to lower your interest rate and then turn around and use that extra cash to chip away at your debt. Even paying just a little extra can help you pay down debt faster.

Is it better to pay off credit card debt or leave a balance?

It’s always better to pay off your entire credit card balance if you can afford to. The truth is that carrying a balance can hurt your credit utilization ratio, which is one of the most important factors that goes into determining your credit scores.

Which credit card should I pay off first?

There are two schools of thought on this. The snowball method advocates paying off the smallest balances first, so you can celebrate the small wins, which could help you build momentum. The avalanche method encourages you to pay off the balances with the highest interest rates first, so you can save money. But don’t forget about the third option: You could also try consolidating your credit card debt into one monthly payment that’s easier to keep track of and ideally offers a lower interest rate.

Next steps: Create a budget

Paying off credit card debt requires patience and persistence. If you don’t want to go it alone and think having some extra guidance will improve your chances of success, consider working with a nonprofit credit counseling organization or you may be able to work with your creditors to negotiate your payments. Here are a few steps that you can take to help you get started on your debt-repayment journey today.

  1. Decide which debt-repayment method is best for you — the snowball method, the avalanche method, or debt consolidation.
  2. Establish a budget to determine how much money you’ll allocate to repaying debt each month. A debt repayment calculator can help you plan your payments.
  3. Eliminate or reduce as many expenses as possible until you’re debt-free.
  4. Look for ways to generate additional income — like taking on a second job, creating your own business on the side or selling some of your possessions — to pay off your debt faster.
  5. If you can, avoid using credit cards until you’ve paid all your balances in full.

To get started with a budget …

  1. Look at your paycheck. How much are you “taking home” each month after taxes? It’s helpful to know how much you’re starting with.  
  2. Review your monthly expenses. Take a closer look at your spending patterns. Jot down the essential payments you need to make each month (like for your groceries, rent, mortgage, auto loan, cellphone, etc.). Then, comb through all your other expenses to see if there are any purchases you can cut until you pay down your debt. For example, are you paying for any subscriptions you no longer use?
  3. Create a plan for what’s left. Once you figure out how much of your paycheck is left after you pay for the essentials, it’s up to you to decide how you want to split the remainder of your money between discretionary purchases, building your emergency savings and paying off debt.
  4. Put your extra money to good use. Use any extra money you receive, such as tax refunds, bonuses or raises, toward paying down debt.
  5. Give yourself wiggle room. Remember, getting out of debt tends to be more of a marathon than a sprint. No matter how motivated you are, at some point you might run out of breath. So pace yourself. Bake in some money for the things you enjoy most. That way, when the going gets tough, you’ll have the wherewithal to keep going.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.