The Six Best Methods for Paying Off Credit Card Debt

The average balance per consumer now stands at $6,580—up 3.5% year over year, according to a recent report from TransUnion. Altogether, consumers owe a record $1.21 trillion on their credit cards, according to a separate report from the Federal Reserve Bank of New York. If you're struggling with credit card debt, it's safe to say you're not struggling alone.

Carrying a growing balance on high-interest credit cards can put a huge financial strain on your monthly budget. Whether it's an unexpected expense—like a car repair or medical bill—or you're going through a period of reduced income, being saddled with credit card debt can make it feel impossible to get ahead financially. If you're struggling to make a dent in your credit card debt, here are some of the best ways to create a plan to become debt-free once and for all.

The debt snowball method

The debt snowball method focuses on paying off your debts in order of smallest balance to largest. You make minimum payments on every debt except the smallest, where you pay as much extra as possible until it's paid off. The idea is that getting "wins" by paying off smaller debts quickly can provide much-needed motivation to keep going. However, this method typically results in paying more in interest over time. Here's my guide to deciding if the debt snowball is right for you.

The debt avalanche method

Compared to the snowball method, the avalanche method involves listing out all your debts from highest interest rate to lowest interest rate. You make minimum payments on every debt except the highest interest rate one, where you throw all extra money until it's paid off. This is the fastest mathematical way to get out of debt while paying the least amount of interest charges. This can be especially helpful if you have one or two debts with significantly higher interest rates than the others. The downside is you may not see entire debts paid off for a while, which may sap a bit of your motivation.

The debt snowball method is often recommended for individuals who need the psychological motivation of quick wins to stay motivated in their debt repayment journey. The debt avalanche method, on the other hand, is considered the most cost-effective approach from a pure numbers perspective, as it minimizes the amount of interest paid over time.

Debt consolidation loan

Debt consolidation can look like an easy solution if you have multiple loans or credit cards and are struggling to keep up with all the separate payments. Taking out one loan with a lower interest rate to pay off all your credit card balances at once can streamline the repayment process to a single payment.

You may qualify for a much better interest rate than your cards through a bank, credit union, or online lender with a debt consolidation loan or personal loan. Balance transfer credit cards that offer 0% interest for 12-18 months can provide breathing room if you can pay off the full balance during that period—more on that below. But first, keep in mind: Debt consolidation loans aren't necessary in many cases. At the end of the day, debt consolidation loans are financial products, which means financial institutions wouldn’t offer them to you if they didn’t make money from them.

Balance transfer

With a balance transfer, you move your existing credit card balance(s) over to a new credit card that offers an introductory 0% APR promotion for a set period of time, usually 12-18 months. If executed properly, you can use those months to aggressively pay down the debt without accruing additional interest charges. The key is to have a plan to pay off as much of the balance as possible before the 0% APR period expires. Many balance transfer cards charge a 3-5% fee on the amount transferred, but this is usually still less expensive than the interest you'd pay without the transfer. Here are some of the best balance transfer credit cards to explore.

Debt management plan

If you're having trouble managing payments to multiple creditors, consider reaching out to a non-profit credit counseling agency. A qualified (crucially, non-profit) credit counseling agency will give you free debt analysis. And by law, they must serve your best interests and recommend a debt solution that works for you, not them. They can put you on a debt management plan where they negotiate with your creditors for lower interest rates and fees. All the money you pay goes directly toward your debts, but there may be costs to use such a program. There’s often a setup fee of up to $75 and an ongoing monthly fee of between $25 and $75. Look into qualified non-profit credit counseling agencies here.

Borrowing from friends and family

Now, I'm not suggesting you create an untenable—not to mention uncomfortable—situation with your loved ones. But if your circumstances allow, one option to avoid high interest rates is borrowing money interest-free from a loved one. If exploring this route, be sure to clearly document the repayment terms and amounts in writing to protect the personal relationship.

No matter which method you choose, review your full financial situation and make a plan you can stick with until you're debt free. Seeking professional guidance can help determine the right debt repayment strategy for your unique circumstances.

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