What are the most effective strategies to pay off credit card debt?

Summary

• The debt avalanche and debt snowball are popular methods to help you strategically pay off credit card debt.
• Paying more than the minimum required on your monthly statement could help you shave down your debt in less time.
• A balance transfer credit card allows you to transfer your high interest debt to a new credit card with a possibly lower interest rate.
• Debt consolidation is the process of taking out a new loan with a lower interest rate and better terms to combine and pay off multiple debts.
• A home equity loan or home equity line of credit (HELOC) could be an option to cover your credit card debt.

You may find yourself in credit card debt for all sorts of reasons. Maybe you used your card a bit too heavily to furnish the new place you just moved into, or a sudden injury put thousands of dollars on your card that you didn’t expect. Life happens, and holding some credit card debt has become the norm for many Americans.

But the reality of living with credit card debt is that it can create unnecessary stress and, worse, prevent you from pursuing more meaningful financial goals. If you’re ready to take charge of credit card debt and eliminate it once and for all, here are nine strategies that can help.

 

9 Strategies for paying off credit card debt

1. Try the debt avalanche method

The debt avalanche is a method of debt repayment that focuses your effort on getting rid of your highest-interest debt first.

Create a list of all of your debts, including the interest rate and balance due. Then, continue to make minimum payments on all your debts while you put any extra funds toward the debt with the highest interest rate.

Once the first debt is paid, be sure to celebrate the win before moving on to aggressively paying off the debt with the next highest interest rate.

This method could help save you the most money over time, since you’ll limit how much you’ll pay in interest.

2. Consider the debt snowball method

Instead of focusing on the interest rate like you would with the debt avalanche method, the debt snowball has you focus on your lowest balance debt first.

While you won’t save as much on interest payments, seeing the debts crossed off your list more quickly can encourage you to stick with your plan until all your debts are paid.

3. Pay more than the minimum amount due

If you only make the minimum payment due most of your monthly payment goes toward interest. In order to put a dent in the actual debt you owe, you’ll need to pay more than the minimum.

Find an amount that makes sense based on your budget and commit to paying that every month.

4. Look into a balance transfer

A balance transfer credit card, like the U.S. Bank Shield™ Visa® card, may help you combine multiple debts into a single card, typically with a lower interest rate. Look for cards that offer a 0% or introductory interest rate for the first 12 or 18 months, then create a plan to pay off as much of the balance as possible during that period. If you do not pay off the entire balance during the introductory period, you may start accruing interest at the normal rate.

Keep in mind that you may have to pay a one-time fee to complete the balance transfer. However, the amount you may save on interest payments often makes up for the cost.

5. Consider consolidation loan

A debt consolidation loan is a personal loan that allows you to transfer debt, like credit card debt, to a fixed rate loan. The major benefit of moving debt to a personal loan is that you’ll be able to see exactly when the loan will be paid off based on the term length you choose, and you’ll have a set payment every month.

6. Think about using the equity in your home

If you own your home and you’ve been steadily paying down your mortgage, or if home prices in your area have gone up, you might have accrued a meaningful amount of equity. Equity is the difference between what you owe on your mortgage and the market value of your home. You can use a home equity calculator to understand available loan options, which can include a home equity loan or home equity line of credit (HELOC).

If approved, you could use your home’s equity to pay off your credit cards, then work to pay back your home equity loan or HELOC instead of making payments to your credit card companies. Depending on the interest rate you qualify for based on your credit score and other factors, you could experience significant interest savings.

7. Reallocate any financial windfalls

A financial windfall is any money you receive that you don’t account for in your monthly income. Windfalls can be an inheritance, a bonus at work, or an unanticipated tax refund. Instead of spending this money, consider putting it toward your credit card debt to pay off your balance more quickly.

8. Increase your income

Before committing to paying off your credit card debt, make sure to review your spending habits to correct any issues that may have caused the debt. And while you can only cut spending so much, there’s no limit to how much money you can earn.

Consider available ways to increase your monthly income, whether that’s picking up overtime at work, starting a side hustle or asking for a raise. Even an extra $100 a month can be meaningful when it comes to repaying debt.

9. Consult a financial professional

Your local banker, financial advisor, or financial planner can help you develop an appropriate strategy to get out of credit card debt. These financial professionals are trained to give you support when it comes to budgeting, saving, and investing, so you can work alongside them at every stage of your financial journey.

 

What’s next for your finances when you’re debt-free?

Once you’ve successfully paid off your debt, the most important thing to do is not to let yourself get back into debt. That might look like switching to paying cash instead of swiping cards or finding an accountability partner to keep you on track with your budgeted monthly credit card use.

Then, be sure to reallocate the money you were paying toward debt to your other financial goals, whether that’s building a larger emergency fund, saving for your dream vacation, or investing in your children’s education fund. Now that your debt is behind you, you’re free to dream as big as your imagination can take you.

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