Not all debt is created equal. When it comes to debt that can put you in a financial hole and make it tough to climb out, credit card debt is near the top of the list.
Credit cards aren’t an inherently bad financial product. In fact, when used correctly and paid off on time every month, they offer a lot of value to consumers in the form of greater financial flexibility and rewards accrued as a percentage of your spending.
But when you start carrying a balance forward on your credit cards, the consequences can be staggering. It is normal for credit cards to carry interest rates of 17-24 percent, which means you can pay up to 2 percent or more on your unpaid balance every month.
Add that on top of your monthly expenses and spending, and that deficit can quickly spiral out of control. If you’re facing credit card debt and looking for ways to pay it off, here are five helpful strategies to consider.
1. The Avalanche Method
Interest is the principal enemy when it comes to credit card debt because it can deepen your financial hole so quickly. If you’re eager to minimize the interest paid on your credit cards, the avalanche method can help you reach that goal.
With the avalanche method, you prioritize payments by putting all of your extra funds toward the account with the highest interest rate, regardless of the size of the balance on that account. Once it is paid off in full, you can tackle the account with the second-highest interest rate, and so forth until everything is paid off.
This strategy is the best way to limit the cost of credit card interest, keeping more money in your bank account in the long run.
2. The Snowball Method
The avalanche method is great for minimizing total interest paid, but sometimes it makes more sense to reduce the number of unpaid balances you’re carrying across a handful of credit cards. Each balance comes with a minimum payment requirement that can put a strain on your finances and limit the extra funds you have to go above the minimum payment on any of your accounts.
In this case, the snowball method can offer an advantage. It is similar to the avalanche method, but instead of prioritizing the highest interest rates, you start by paying off the account with the smallest balance.
By starting with smaller accounts first, you can pay them off faster and free up more of your money to put toward other credit card balances, gaining momentum with each balance you pay off.
3. Taking Advantage of Balance Transfer Promos
Some credit cards offer promotional offers to encourage consumers to transfer their balances over to a new account.
Keep an eye out for these if you’re looking for some short-term relief in exchange for paying a flat balance transfer free (usually 3-5 percent of the balance being transferred).
This short-term relief could be obtained by opening a new credit card offering this service, or it may be available through an existing credit card. If you anticipate needing more than a few months to pay off your current credit card debt, this option can save you money in the long run.
4. Consolidating Credit Card Debt
A personal loan can be a useful financial product for consolidating debt, reducing your monthly payments, and cutting down the amount of interest paid on that debt.
A personal loan can carry a high interest rate relative to other forms of debt, but it can still beat the interest rate you’re paying on your credit cards by 50 percent or more.
You can also choose a repayment plan that features a payment amount and schedule that fits your current financial situation, ensuring you’ll be able to successfully pay down your credit card debt.
5. Finding a 0% APR Offer
A new, interest-free credit card offer can be a useful tool when used the right way. You can make new charges to this account while dedicating more of your monthly income toward paying off existing debt.
This process needs to be carefully managed to avoid repeating past mistakes in the near future. If you use an interest-free credit card offer for short-term debt relief, you still need to have a plan in place to pay off that debt before the end of the promotional period. Otherwise, you’ll be back where you started, trying to pay off a pile of credit card debt.
Still, it can offer short-term relief and give you a little more time to get your finances in order.