Three Strategies to Pay Off Credit Card Debt

You may well have heard of the Snowball Method and the Avalanche Method as strategies that can be used to pay off debt. With the Snowball method you aim to pay off your smallest debt first, and with the Avalanche Method you aim to pay off the debt with the highest interest rate first. If you’re using the Avalanche method, it’s likely that you’re tackling credit card debt first, as it tends to come with a very high interest rate. But what’s the best way to pay off credit card debt?

The short answer is ‘as quickly as possible’ because of that high interest rate and the fact that interest accrues daily, so the quicker you can pay down those credit cards the better. But there are a few different strategies that might work for you depending on your money mindset.

Automate It

I’m not a fan of too much automation when it comes to personal finance. I genuinely find that the more I interact with my money, manually spending and saving it, the more in tune with my finances I am. And that helps me manage money better. For some people, however, automation can work well, because once it’s set up, you really don’t have to think too much about your debt.

Ideally you want to set a goal for when you want to pay off debt, work out the monthly repayment to reach that goal (remembering to factor in interest), then automate the monthly repayments. Many of us find that, as long as we’re roughly covering our monthly expenses, we rarely think about automated payments. That often works against us. It’s the reason we forget to cancel automated subscriptions even if we’re not really using them. It’s the reason we may be over-paying for things like insurance, because our circumstances have changed, but the automated payments are still rolling out. It’s the reason we don’t re-negotiate some monthly bills and loan re-payments as often as we should. Once something is automated we tend to forget about it.

Occasionally, though it can work for us as well. If you choose to automate credit card repayments each month, so they leave your bank account without you having to think about them, you may find that you think less about your debt and worry less about your finances in general. You’ll want to set your repayments at a level that will pay off the outstanding amount as soon as possible, but also at a low enough level that you can still manage comfortably on a month-to-month basis.

Repayment by Purchase

A 2020 white paper from Harvard Business School examined the concept of Repayment by Purchase, a novel credit card option whereby consumers can pay down specific purchases made on their credit card, allowing for a feeling of control and the perception of progress toward paying down a specific debt. Studies revealed that consumers given this option had higher repayment rates, with those who were given the opportunity to allocate their payment toward specific purchase categories paying 12.18% more toward their debt balance than a control group.

While this is a new concept not available yet from major card providers, it can help to think in terms of paying down specific purchases when you pay your monthly credit card bill. If you’ve recently put a large purchase on a card, then thinking in terms of ‘clearing’ that one specific purchase can encourage you to make a larger payment than you otherwise would.

Move It

It’s important to be aware that moving debt around isn’t the same as paying it down and shouldn’t be seen as an alternative to repayment. However, it is sometimes possible to move debt off one particular credit card, either by transferring it onto a zero interest card, or by taking out a consolidation loan to pay off the card. There are pros and cons to both debt consolidation loans and zero interest cards, but they can often result in a lower interest rate, or no interest at all for a specified amount of time.

Be aware that there may be added fees to transfer a balance or consolidate a loan, and never look on moving debt as a way to avoid paying it. Ideally you’ll move debt to access a low or no interest option, then pay it off as aggressively as possible. Zero interest cards will charge zero interest for a set period of time, then revert to a very high interest rate (potentially higher than the card you transferred the debt from).  So your goal with these cards is always to pay off the debt in full within the time period that you’re offered interest free.

A Final Tip

The reason many Americans carry so much credit card debt is that they invariably continue to use their card, even after debt is clearly out of control. There are some pretty good reasons to use credit cards, but if your credit card debt is getting away from you, it’s time to focus on paying down the debt AND not running up any more. Leave your credit card at home, delete your details from online shopping sites, and commit to paying cash for a while on the majority of daily purchases. That will allow you to see the numbers on your monthly credit card statement actually getting smaller rather than bigger.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen