You can use credit cards to pay for everyday and emergency expenses while possibly earning points and cash back benefits. However, they can have high interest rates, leading to debt if you don’t pay your balance in full every month. Thankfully there are multiple ways to pay off credit card debt for a better future.
Below are four ways to pay off credit card debt: the avalanche method, the snowball method, debt consolidations, and balance transfer.
| Method | |
| The avalanche method | Prioritize paying higher interest debts first: You’ll still need to pay the minimum amount on all cards, but the largest payment will go toward the card with the highest APR (annual percentage rate). |
| The snowball method | Focuses on tackling lower balances first: Any extra funds you have after paying the low balances will go toward the higher amounts. You’ll still need to pay the minimum amount on all accounts to avoid fees. |
| Consolidate credit card debts | Instead of several monthly payments, you’ll only have one. A debt consolidation loan will ideally have a lower interest rate than your credit cards to help reduce your accumulated overall interest. |
| Credit card balance transfers | Move the debt from your existing accounts to one, low-interest card to create a single monthly payment. Cards designed for this purpose often have a 0% introductory interest rate so that you can reduce your debt faster. |
How to use the avalanche method
The avalanche method prioritizes paying higher-interest debts first. You will still need to pay the minimum amount on all credit cards, but you’ll make a larger payment on the card with the highest APR (annual percentage rate).
After you’ve paid off the high-interest debt, put your money toward the account with the second highest interest rate. You’ll pay less interest overall, leaving more money in your pocket.
Example: If you have three credit cards with 35%, 22%, and 18% interest rates, you’ll want to make additional payments on the 35% card. Once you’ve paid this debt, you can start paying more towards the 22% credit card, then the 18% one.
How to use the snowball method
The snowball method focuses on tackling lower balances first. After paying the lower balances, any extra funds will go toward the higher amounts. You’ll still need to pay the minimum amounts on all accounts to avoid fees.
Example: If you have three credit cards with balances of $6,000, $2,000, and $1,200, you’ll pay down the $1,200 balance first. Next, you’ll focus on the balance of $2,000, saving the $6,000 balance for last.
How to consolidate your debt
You can pay off your debts faster and potentially with a lower interest rate with debt consolidation. Instead of making several monthly payments, you’ll only have one.
The debt consolidation loan will ideally have a lower interest rate than your credit cards to help you accumulate less interest.
Keep in mind:
- You’ll have to apply and qualify for this type of credit card payoff method.
- Most lenders require a mid-600 credit score for debt consolidation loans.
- You may still qualify if your credit score is lower, but the interest rate may be higher.
How to transfer a credit card balance
Balance transfers to a credit card allow you to move the debt from your existing accounts to create a single monthly payment. Most of these cards have a 0% introductory interest rate so that you can reduce your debt faster.
Keep in mind:
- The offer requires you to transfer your balance within a certain time frame.
- After the introductory period, the interest rate will increase.
- You’ll want to pay off your balance as soon as possible.
Some credit cards have a smaller limit than your debt amount. If that’s the case, you could open an additional credit card. As a result of maxing out your credit card limit, your credit score could be negatively affected.
