How to Pay Down Credit Card Debt
If you have multiple credit card balances, there are several methods you can use to pay them down. Here are some common strategies:
Snowball method:
This method involves paying off your smallest credit card balance first, while making minimum payments on your other balances. Once the smallest balance is paid off, you move on to the next smallest balance and so on. This method can help you build momentum and feel motivated as you see your debts gradually decrease.
Avalanche method:
This method involves focusing on paying off the credit card with the highest interest rate first, while making minimum payments on your other balances. Once the highest interest rate balance is paid off, you move on to the next highest interest rate balance and so on. This method can save you more money on interest in the long run, but it may take longer to see progress.
Balance transfer:
This method involves transferring your credit card balances to a new credit card with a lower interest rate or a promotional 0% APR period. This can help you save money on interest and give you a set timeline to pay off your balances before the promotional period ends. The promotional 0% APR period varies by card, but may range from 12 to 24 months.
However, balance transfer fees may apply, and if you don't pay off the balance before the promotional period ends, you could end up with even more debt.
NerdWallet has some helpful information about balance transfer cards: What Is a Balance Transfer, and Should I Do One?
Debt consolidation loan:
This method involves taking out a personal loan to pay off all of your credit card balances. This can simplify your monthly payments and potentially save you money on interest if you can qualify for a lower interest rate than your credit cards. However, you'll need to make sure you can afford the monthly loan payments, and you'll need to be disciplined about not accumulating new credit card debt.
What should you do after you pay down your balances?
If you don’t already have one, build an emergency fund. Having an emergency fund will help you avoid making charges to credit cards if something comes up.
If you already have an emergency fund saved, continue sticking to your budget and try to avoid adding new debt, but don’t close those credit card accounts.
Credit Karma has some great tips to help you spend less, including designating “no-spend” days, using your local library to borrow DVDs instead of renting, and unsubscribing from marketing emails.
No matter which method you choose, it's important to make a plan and stick to it. The best method to pay down your debt is the one you will stick to. Make a budget, prioritize your debt payments, pay more than the minimum balance, and try to avoid adding any new debt while you work to pay off your credit cards.
