Best Ways to Pay Off Credit Card Debt

Best ways to pay off credit card debt

Best Ways to Pay Off Credit Card Debt

Credit card debt feels like a crushing burden, but you can overcome it and find financial peace easily by opting for an accurate strategy. 

Creating a perfect plan and adhering to it is a good place to start. Here we will discuss Multiple techniques and tips to overcome this debt.

We’ll go through various strategies such as settling the lower amounts first or giving high-interest credit cards precedence. Paying over your monthly minimum can result in lower interest payments. 

Let’s go on your journey to credit card ownership without debt.

1) Prioritizing the Debts

This method is advised when you carry more than one credit card. In this way, you pay the minimum on each card. 

Then focus the majority payment on clearing one card at a time.

Avalanche method 

Identify which credit card has the highest interest rate by looking at your bills, then focus on paying that debt off first.

Understand it this way: 

  • You have two cards: one with a lower interest rate and a larger amount, and one with a higher interest rate and a lesser amount.
  • Regardless of the amount owed, your primary goal should be to pay off the card with the higher interest rate first.
  • This saves you more money overall because you’re handling the debt that accumulates interest the fastest.

Snowball Method 

Prioritize paying off the card with the lowest balance. After it’s paid off, use that money to pay off another debt.

Understand it this way: 

  • You own two cards: one with a Less Interest with low balance and the other with a More Interest and High balance.
  • Even if the larger card has a higher interest rate, you should prioritize paying off the smaller card.
  • Once the smaller card is paid off, you take the extra amount you were making on it and add it to the minimum payment of the larger card.
  • This will help you pay off the larger card more rapidly.

This Table can make things easier to understand and choose

Debt AvalancheHighest interest rateSaves the most money on interest in the long run 
Targets the debt accumulating interest the fastest
May take longer to see debts disappear which can be demotivating.
Debt SnowballSmallest balance firstPsychologically motivating – seeing debts disappear quickly. 
Easier to stick to the plan.
May pay more in interest overall compared to the Avalanche method

2) Paying a Bit More than Minimal Dues

Paying up more than the due amount can help you in many ways. 

This can help you to build up the Cibil Score or FICO Score, Reduce your Principal amount, decreasing your EMI period.

  • The Minimum Payment Trap: 

If you only make the minimum payment shown on your account, it may take a long time to pay off your debt.

  • Increasing Interest: 

The interest rates on credit cards are high. It becomes more difficult to get out of debt the longer you hold a load.

  • Impact of Statement: 

The majority of credit card statements include a table calculating the time period for a loan to clear off.

  • Break the Cycle: 

Making more than minimal payments prioritizes actual repayment by lowering debt and interest. This helps in your escape from the debt cycle.

3) Consolidate Debt

Taking out a new loan to pay off multiple present debts is known as debt consolidation. 

It’s like collecting a few small bills scattered over the room and putting them in a neat little mound.

Let’s discuss the best methods for debt consolidation:

Transfer your balances

  • High-Interest Escape:
  • A debt transfer card can save your bacon if you have a balance on a high-interest credit card. 
  • For a limited time, these cards have 0% interest rates (typically 12–18 months).
  • Move the Debt: 
  • You move your existing credit card balance to a new card with a much lower interest rate (often 0% for a limited time). 
  • This allows you to focus on paying down the debt itself without high interest charges.
  • Weigh the Fee: 
  • A balance transfer fee is usually charged, ranging from 3 to 5% of the transferred amount.
  • Costs can be justified by the large interest rate gap between the present rate and the 0% intro rate.
  • This gap’s interest savings can cover costs.

HELOC for debt consolidation:

HELOC (Home Equity Line of Credit):

  • Like HELOCs, home equity loans are backed by the value of your house and work similarly to credit cards.
  • They let you take out a loan against the equity in your house, less the amount of your current mortgage
  • HELOCs provide you the freedom to borrow money for a range of needs by using the equity in your house as security.

Potential for Lower Interest Rates: 

  • The interest rates on HELOCs are less than those on credit cards.
  • You may save money on interest by combining credit card debt with a home equity loan.

Additional Tips:

  • Minimum Payment: To prevent late fines and credit score damage, always make the minimum payment due on all of your cards.
  • Track Spending: Keep tabs on your spending to find areas where you may make savings and free up extra cash for debt repayment.