4 Strategies for paying off credit card debt
7 min read
At a Glance:
- To pay off credit card debt, first put a pause on new credit card purchases.
- Then choose a debt repayment strategy that you can stick to.
- The snowball method prioritizes paying off your smallest balances first.
- The avalanche method focuses on paying down cards with the highest interest rate.
- Or you could consolidate your debt with a loan that carries a lower interest rate, making it cheaper and easier to pay off.
If you’ve got credit card debt, you’re not alone. Millions of Americans carry a credit card balance on one or more cards from month to month. Credit cards are designed to let you do this, but the problem is it can get expensive quickly. Interest rates can average more than 20%, and if you carry a balance, you’ll start paying interest on your interest, which can increase your debt fast. (This is a known as compounding interest, and it can be a bit of a beast.)
Paying off credit card debt can seem overwhelming. And when you have debt on more than one card, it’s not always easy to know where to start. But Spruce is here to help. We’ll walk you through your options for how to pay off credit card debt and get your finances back on track.
4 Ways to pay off credit card debt
Successfully paying off your credit cards comes down to choosing the strategy that works best for you. Consider these four ways to pay off credit card debt.
The snowball method
If you’re paying off multiple credit cards at once, consider the snowball method of debt repayment.
- Choose the credit card with the smallest outstanding balance, then make the largest monthly payments you can afford on that card. At the same time, continue making the minimum credit card payments on your other cards.
- When the first card is paid off, move on to the card with the next smallest balance. Roll the payments you were making on the first card into payments for the next card. That way, you’ll start to pay each card off faster and faster.
- Continue until all your cards are paid off.
Pros: The snowball method lets you quickly gain momentum and a motivational boost you get from paying off a debt in full. When that first card is sent packing, harness that positive energy and tackle the next one.
Cons: This method doesn’t account for interest rates. So, you may end up paying more interest than you would with other methods if your larger debts have higher rates.
The avalanche method
With the avalanche method, you prioritize paying off the card with the highest interest rate, no matter the size of the balance.
- Make the largest monthly payments on the card with the highest rate.
- At the same time, continue making minimum payments on all other cards.
- When the first card is paid off, put the money you were using for it toward the card with the next highest interest rate.
- Continue in this way until all your cards are paid off.
Pros: With the avalanche method, you will save more money in interest over the long term.
Cons: This method requires a bit of discipline since you may not pay off the first card or two as quickly as with the snowball method. But your patience is rewarded with interest rate savings.
Debt consolidation
You might be able to consolidate credit card debt with a personal loan from a bank.
Pros: When using the debt consolidation method, you pay off all of your cards at once with your loan proceeds. You will have to make loan payments — but generally the interest charges on a secured personal loan are less than a credit card. A lower interest payment could mean money in your pocket to help you pay down the debt more quickly.
Cons: New loans may come with added costs, such as origination fees, closing costs, and annual fees.
Credit card balance transfer
A credit card balance transfer involves transferring your existing card balances to a new card with a low introductory offer—often 0% interest for the first year. A balance transfer can also be offered to an existing credit card, often with a low interest rate plus a fee.
Pros: With no or low interest factored into the monthly payment, you can afford to pay down more of your balance.
Cons: When the low-rate offer expires, the interest rate may skyrocket, possibly eliminating any advantage. As a result, a balance transfer strategy may be worthwhile only if you expect to be able to pay off your debt quickly. Another drawback—and it’s a big one—is if you miss a payment. If that happens, the rate jumps to the full rate and sometimes the interest is accrued back to the time you did the balance transfer.
Debt relief
Credit card debt relief can mean engaging a debt counselor who can help you plan a budget and, in some cases, negotiate payment plans with lower interest rates and fees.
Pros: A debt counselor puts a seasoned professional on your team who can help you make a plan to wrangle your debt and help with debt management
Cons: Many debt relief services, even ones billed as nonprofits, are scams that will ask for illegal upfront fees. Avoid organizations that charge high fees, and research counseling services with the Better Business Bureau. One good source is the National Foundation for Credit Counseling. You can also try negotiating with your credit card company yourself. They are under no obligation to grant relief, but you can sometimes work out a payment plan just by calling them; they’d often rather get something than nothing.
Paying off credit card debt: The bottom line
Ultimately, the best way to pay off credit card debt is to choose a plan you can stick to. And that’s going to be a different choice for everyone because everyone’s situation is different.
If you’re looking for how to pay off credit card debt fast, that’s simple: Pay as much as you can, every month—and try to avoid making new purchases along the way. That could mean re-thinking your family budget. Cut back on non-essential expenses or consider taking a side gig to free up extra money you can use for debt repayment. The sooner you pay off those cards, the less you’ll owe in interest.
As you pay off your debt, make a budget that guides you in living within your means. Build an emergency fund of at least three months’ worth of expenses. That way you won’t need to take on debt when the unexpected happens, like a car repair.
How credit card debt affects your credit score
Taking out a personal loan or transferring credit card balances to a new card could ding your credit score, although possibly only in the short term. If you make regular payments, your score should improve in the long run.
Missing credit card payments can also hurt your credit score, which can make it harder to qualify for credit in the future. So do what you can to at least make minimum monthly payments. If life gets in the way and your score takes a hit, there are steps you can take to improve it. Explore how to build credit without a credit card.
Next step: Keep tabs on your credit with help from Spruce
Keeping on top of your credit card debt and on top of your credit is important to your financial wellness. With the Spruce mobile banking app, you can easily check your FICO credit score whenever you want.
Get started with Spruce today!
This information provided for general educational purposes only. It is not intended as specific financial planning advice as everyone’s financial situation is different.