Best way to pay off cc debt

Once you have completely paid off your credit card with the smallest balance, you take that same monthly budget and apply it — in addition to the monthly minimum payment — to the credit card with the next smallest balance

Using the avalanche method to pay off credit card debt

Where the snowball method attacks the credit card with the smallest balance, the avalanche method reduces your credit card debt by attacking your credit card that has the highest annual percentage rate (APR) or interest rate.

While you use minimum payments to pay against all of your other credit cards, you use as much as you can from your available budget to pay off your high-APR credit card.

Once you have fully paid off the high-APR credit card, you use that same monthly budgeted amount — in addition to the monthly minimum payment — to pay off the next-highest APR card.

The avalanche method works by striking down the biggest contributor to your increasing credit card debt: interest payments. By paying off your highest APR card, you significantly reduce the amount of interest that you must regularly pay each month.

Picking a method to pay off your credit card debt

Both the snowball method and the avalanche method have been proven to be effective ways to reduce credit card debt.

Proponents of the snowball method suggest that working on a smaller balance allows you to develop habits that promote credit card health while creating a goal that can be quickly completed.

Avalanche method supporters contend that building a budget that works against your highest APR card is more financially advantageous, as you are immediately reducing the debt that produces your largest bills.

Either method can combat your credit card debt, provided you have a full understanding of all of your credit card's balances. You can also use both debt reduction methods by switching between paying off smaller balances then shifting to cards with high APRs: as best matches your available budget and motivations.

4. Automate your payments

For any method you use, automating your payments allows you to commit to a monthly budget for reducing your credit card debt. As you do, take advantage of any ability to rearrange your credit card payment dates to better align with your paychecks.

5. Investigate alternative ways to pay off credit card debt

If you have found that your budget can't handle a self-directed credit card debt reduction plan or you have too many open accounts to manage on your own, it may be time to look into other resources.

Debt counseling services

Debt counselors will likewise assess your income and debts and aim to build a roadmap towards a zero balance. They can also leverage their standing to earn lower settlements and interest rates against your accounts.

For severe debt, debt reduction solutions from debt counselors may include debt settlements as they attempt to consolidate your bills and reduce your overall interest rates. While debt settlements can close your credit card accounts, they may also put a negative resolution on your credit history, which can drive your credit score down.

Finally, while most debt counselors will apply a service fee, there are some qualifications that can earn you a free or a reduced price on debt counseling services.

Balance transfer credit cards

Balance transfer credit cards may be useful to some people, but there are a few thing to consider when it comes to applying for one, such as credit worthiness, balance transfer fees, and more. Most credit card offers that include an ability to transfer existing credit card balances will also state their APR: so moving an existing balance from a high APR card to a new credit card with a lower APR may help reduce the amount of interest you will pay on the balance each month.

Balance transfer fees

If approved for a balance transfer, the bank or credit issuer may charge a balance transfer fee. Although these fees may vary, this fee typically amount to 3-5% of the balance you are requesting to transfer. You should take this fee into account when factoring in whether or not a balance transfer will help save you money in the long run.

Balance transfer credit cards with an introductory 0% APR

When you have a good credit score, you may be offered a 0% APR for any balance transfers to the new credit card during an introductory period. When you are proactively working to pay off your credit card bills, an introductory 0% APR credit card can be a great way to start your debt reduction.

By moving your debt from existing credit cards that have a high APR, you are removing the interest payments you will have to make on the open line of credit for a period of time — typically 12-18 months. Provided that you are paying as much money as possible to pay off your new credit card during that introductory APR window, you are saving additional payments of interest each month.

Balance transfer credit cards with lower APRs

Even if a new credit card doesn't offer 0% APR on balance transfers, moving an existing balance from a high-APR credit card to one that has a lower APR will reduce the amount of interest you pay every month.

While continually transferring balances is a risky behavior, coordinated and strategic balance transfers as you reduce your credit card bills can be a way to limit the amount of interest you pay.

Debt consolidation loans

A good debt consolidation loan will pay off your credit cards all at once, rearranging your finances to pay off the loan at a lower interest rate over a longer period of time. To qualify, you'll likely need a strong credit score to earn lower interest rates than your current credit card APRs.

However, some debt consolidation loans may have monthly payments that are higher than your current credit card bills: so be certain that you can afford the monthly payments before you commit. If you get a credit consolidation loan, you should also be aware that it could cause your credit score to go down if it negatively affects your credit utilization ratio.

Additionally, a potential trap with debt consolidation loans is to offer you relief from your credit card debts while giving you that steady monthly loan payment to meet — but your suddenly available credit pushes you towards new expenses. While closing your credit cards isn't healthy for your credit score, the temptation to use your new zero balances for new spending can drive you right back into a credit card debt crisis.

It's especially important when using a debt consolidation loan to carefully monitor and limit your credit card usage against your budget.

Home equity loans or lines of credit

Similar to loans earmarked for debt consolidation, home equity loans or home equity lines of credit can allow you to put your loan towards existing credit card debt. Given that these loans are secured by your home, you can often have higher loan limits than a personal loan. Of course, the risk involved is that if you are unable to regularly meet the payment terms of your home equity loan or line of credit, the bank can foreclose on your home.

Like a debt consolidation loan, it can be attractive to wipe out your credit card debt all at once through a home equity loan. But, as you take on your monthly loan payment, take care to monitor and limit any of your credit card expenses to be certain that you don't build another debt that you can't repay.

6. Cultivate a healthy credit lifestyle

Often, we drive ourselves to learn about credit only when we realize we have credit problems. As you look to pay off your credit card debt, you can begin to understand the best ways to sustain a healthy and affordable credit lifestyle. This can help you avoid a credit crisis, but it can also drive your credit score higher so you can obtain attractive terms for the loan or line of credit that you may need in your future.

7. Lock but don't close your credit card accounts

Debt reduction only works if you stop adding to the balance with new purchases. To avoid overspending or accumulating additional debt, you can request your account to be locked or frozen. This will keep your account open, but you won't be able to use the card to make purchases until it is unlocked. This will help three key elements of your credit score:

What are 3 ways to pay off credit card debt fast?

What is the best way to pay off credit card debt without hurting your credit?

Is the snowball or avalanche method better?

What are the 5 ways to pay down credit card debt?