- Credit card debt is often tackled using the avalanche or snowball method, both of which provide different pros and cons and suit different personality types.
- Speed up your repayment process by doubling down on payments, forming a repayment plan with a professional, and cutting unnecessary spending where possible.
- Avoid using a personal loan, debt consolidation, balance transfer, or home equity loan if you don’t think you can responsibly handle your finances and keep from getting into a deeper hole.
In 2018, Americans had roughly $870 billion in credit card debt. That’s no small chunk of change. The good news is that if you’re a part of this number, you’re definitely not alone. The even better news? You can start paying off your credit card debt in the near future with a little prep work and good habit forming.
Your credit card balance won’t lower itself, so first things first, let’s take a look at some common methods for reaching debt-free status.
The Best Ways to Pay Off Credit Card Debt
You can pay off your credit card debt without a specific method, but like all things, a little guidance doesn’t hurt.
When it comes to the best way to pay off credit card debt, there are two primary methods or schools of thought that many people use to tackle debt. Neither one is better than the other, but each does have its own perks and offers something different.
If your credit card debt consists of more than one card, you’re likely tempted to pay off the smallest balance first. After all, zeroing out that card would be a great feeling. The avalanche method, also known as a debt avalanche, takes a more mathematical approach and focuses on tackling the highest interest credit card first. This card may have a larger balance than your other card or cards, so you won’t be seeing a zero as soon.
The upside is that you’ll ultimately pay less in interest. You’re lowering the total on the card with the highest interest rate, thus reducing your interest owed. Interest charges can only make a credit total higher, and the avalanche method keeps those interest fees as low as possible.
At the other end of the repayment spectrum is the snowball method, also known as a debt snowball. Unlike a debt avalanche, the snowball method focuses on the smallest debt first. Credit card interest rates aren’t the determining factor here — only the total. You may have a card with a lower rate and lower balance that you pay off first, or you might have a card with a higher interest rate but lower balance. Ultimately, you’re only concerned with taking the lowest balance and seeing how quickly you can pay it off and get it out of the way.
While this method won’t yield the same amount of savings as the avalanche method, it does give you the satisfaction of zeroing out a card much sooner than the previous method. This method is more of an emotional approach, and is a great choice for those with poor spending habits that are looking for a win to keep them motivated to save. If this describes you, forget about the higher or lower interest rate and pick a card with a balance you can conquer quickly.
For more information, read our in-depth guide on paying off debt for millennials, where we tackle the snowball and avalanche methods further.
Speeding Up the Process
Regardless of the method you decide to go with, there are numerous ways you can make the process go even a little faster. Ultimately, the best way to pay off credit card debt is any way that gets you there quickly and safely.
With paying off debt quickly as a big plus, take note of these tips that will speed up the process and decide which ones are a good fit for your income and lifestyle.
- Double up on payments: Your goal should be getting rid of that debt as quickly as you can, especially if you’re working on lower interest cards first. While cards have a minimum payment, you should make it a goal to exceed that. Even better, go above the monthly payment and double up on your payments each month. Paying more and more often will lower your interest payments, making it even easier to catch up, allowing you to pay more often — you get the idea.
- Form a debt repayment plan: Some people need a little more structure or support, and that’s absolutely okay. If you feel you need a little more coaching or guidance, look into credit counseling with a financial adviser. They’ll be able to come up with a debt repayment plan that’s tailored to your lifestyle and income, talk about the ins and outs of credit and how it works, and help you build a credit history you can call your own. While these counselors or advisers can cost money, in some cases it can be money very well spent.
- Cut unnecessary spending: It’s great to cut unnecessary spending anytime, but especially when you’re focused on credit card debt. If you have numerous streaming services you don’t use, a gym membership that’s collecting dust, or you tend to eat out a lot, cut back where you can and apply that saved money toward your debt. Even the smallest amounts can add up and help you cut back on interest.
Common Pitfalls of Credit Card Repayment
There are a number of resources and tools available that can help you eliminate some or all of your credit card debt in one fell swoop. These avenues can be tempting, and in some cases they can be the right move for the right person. But, remember: the best way to pay off credit card debt is a method that gets you to the finish line safely.
Think long and hard about the following before moving forward with any of them, as they can lead to more debt if you’re not careful with your spending habits.
- Debt consolidation: A debt consolidation loan is the act of taking out a loan that clears all of your credit card debt. The idea is that the loan generally has a lower interest rate and more manageable monthly payment than credit card debt, due to a longer set period of time. This can be a great way to clear out aggressive credit card interest quickly, but can result in even more debt if you resume using those credit cards quickly before your loan is paid off.
- Balance transfers: A balance transfer involves moving your credit card debt or debts to a single card that has a lower interest rate. In many cases this is a low introductory APR that results in the monthly interest being far lower than before. Unfortunately, there are often balance transfer fees to worry about. Not only this, balance transfer credit cards generally only have a decent APR the first year or less, and then gain a similarly aggressive APR as the previous cards. This can result in a similar or worse situation depending on your spending habits.
- Home equity loan: Home equity loans are a quick way to get a large sum of money based on the mortgage value of your house. These can be especially attractive if you have a large amount of debt, as home equity loans can be quite large. While these can allow you to pay off credit card debt fast, the risk is far greater than the debt of a credit card. If you can’t pay off your home equity loan, the bank could foreclose on your house and you could lose your home.
- Personal loan: A standard personal loan or peer-to-peer lending loan can be a quick way to pay off all or some of your credit card debt. Like a debt consolidation loan, personal loans can be taken out for a longer period of time and have a low interest rate compared to a credit card. Unfortunately, personal loans with solid rates require good credit, and if you have sizable credit debt it could be tough to secure a great loan. Also like a debt consolidation loan, if your spending habits aren’t under control, you could be left with a personal loan and the same amount of credit card debt.
Tips for Healthy Credit Usage Moving Forward
As you catch up with your debt, and even beyond, it’s important that you establish great spending habits. If you pay off your debt but haven’t fixed the root cause of the problem, you’ll be back in the same situation. Instead, focus on building great habits by using these tips.
- Put the cards away: “Out of sight, out of mind” is certainly true in the case of credit cards. While you’re in the midst of paying off your debt, keep your cards in a safe place where you won’t see them or have quick access to them. This will prevent you from pulling them out while in the mall or a store, and reduce the likelihood of that balance increasing when it should be decreasing.
- Create a budget: If you don’t already have a budget, create a budget as soon as you can. This will help you keep your spending in check, focus on cutting down that debt, and build up your savings.
- Establish a savings account: Speaking of savings, you should still be building up a savings account, even if you’re focusing on debt repayment. Emergencies can happen out of the blue and even a small fund can make a difference. Also, your retirement should still be on your radar, even if it’s decades away. Even the smallest savings is better than no savings, so save what you can and make sure you’re always investing in your future.
- Understand compound interest: Credit card interest isn’t cut and dried, especially when you get into compound interest. Make sure you have a complete understanding of compound interest before you open up a new credit card or resume using your old ones. (To make sure you’re extra prepared, read our guide on calculating your credit card interest.)
- Charge the little things: Once your cards are in better standing, focus on only charging the little things like streaming subscriptions or small utilities. This will allow you to keep your cards in use to maintain or even improve your credit score, without the risk of maxing them out. If you have a rewards credit card, make sure you’re putting these little charges on that one and paying them off before interest can kick in. This allows you to maximize how much you get for your dollar while building a healthy credit report.
Roll the Credits on a Healthy Future
Credit card debt can feel like it will never go away, but with the above information and your dedication, you can do this. Whether you make a snowball or start an avalanche, either way you’re going to bring that debt crumbling down.
Remember to always set aside what you can in case of emergencies, invest in your retirement, cut spending where you can, and find support with a professional or a friend if you need some extra help. Repaying debt is a bumpy journey, but it’s one that’s absolutely worthwhile. It can lead to a future that’s bright and full of possibilities.