How To Pay Off Credit Card Debt: The Complete Guide

Written by Cheri Read

If you're trying to pay off credit card debt, there are five different options you can use:

  • Debt snowball. The debt snowball method involves paying off your smallest debt first, and working your way up to your biggest debt.
  • Debt avalanche. The debt avalanche works the other way—here, you start with your biggest debt, and work your way down to your smallest debt. 
  • Debt snowflake. The debt snowflake method works by capturing small savings and using it toward paying down your debt.
  • Balance transfer. A balance transfer lets you move a balance from one credit card to another, potentially with a 0% interest rate.
  • Personal loan. Personal loans often come with lower interest rates than credit cards, so this is a pure arbitrage play—taking on one, lower interest debt to pay off another, higher-interest debt.

Let's take a deep dive into each one of these methods to see what's the best way for you to pay off your credit card debt.

Paying off debt with the Debt Snowball method

Acclaimed financial expert Dave Ramsey popularized the debt snowball method, which involves tackling your smallest debts first.

The whole idea is to give you a sense of accomplishment and get the momentum started so you’ll be motivated to move onto the next one. 

Here’s how it works, straight from Dave Ramsey’s blog:

Step 1. List your debts from smallest to largest regardless of interest rate.

Step 2. Make minimum payments on all your debts except the smallest.

Step 3. Pay as much as possible on your smallest debt.

Step 4. Repeat until each debt is paid in full.

Sounds simple enough, right? Here’s how it works:

Let’s say you have three debts: a car loan of $5,000, a student loan of $35,000, and a credit card balance of $600. 

Since your credit card carries the lowest balance, it would be the easiest to pay off first.

So, in this case, you would make the minimum monthly payments on your car and student loans, and you'd add any extra cash you had to your credit card payment. 

For example, if your minimum credit card payment is $35, but you feel you can spare an extra $10, you would add that to your payment. 

Now, if you can keep from using your credit card until you get it paid off, you’ll have it paid off in no time.

Of course, in the case of revolving debt like this, how long it takes you will depend on your interest rates.

But the important thing is to keep rolling all your extra money into it until it’s paid in full.

You’ll find that as you see the dwindling balance, you’ll be motivated to find extra cash wherever you can to pay it down faster.

Once that balance is paid in full, then you can move on to the next lowest bill. In this case, it would be your car loan, and then your student loan.

The debts snowball method is known to work because it’s not just another budget or confusing financial plan—it’s actually behavior modification meant to keep you motivated and help you develop more discipline in your spending. 

Pros of the Snowball Method

Cons of the Snowball Method

Psychological re-programming. You see your debt decreasing and stay motivated to keep going.

Might pay more interest. Tackling your smallest bill first could mean you’re letting loans with higher interest rates continue to pile up.

Tackles one bill at a time. This can help eliminate a lot of the stress that many people face about what to pay off first.

Relies on self-discipline. If you already have trouble with self-discipline in your finances, this freed-up credit could be a temptation to get further into debt. Of course, this will be true of any method you use.

Simple. You don’t have to figure out complicated debt-repayment schedules or understand finance to make it work.

Paying off debt with the Debt Avalanche method

The debt avalanche is very similar to the debt snowball, except with this method, you tackle the debt with the highest interest rate first.

First, you’ll calculate the amount of money you have each month that’s available to pay your debts. (You should subtract money you need for groceries, child care, utilities, and other necessities).

Then, taking that amount, you’ll pay the minimum payments on all but one of your balances.

Let’s take the previous example of a car loan of $5,000, a student loan of $35,000, and a credit card balance of $600.

And let’s say the interest rates are as follows:

  • Car loan. $5,000 at 13% interest
  • Student loan. $35,000 at 7% interest
  • Credit card. $600 at 18% interest

In this situation, you would choose to put any extra cash you have after expenses towards your credit card balance—but you'll continue to make only the minimum payments on your other bills. 

And just like the other methods, you’ll continue with this process until you’re debt-free, moving next onto your car loan.

The point is to save yourself interest costs in the long run by getting rid of your most expensive debts.

Pros of the Avalanche Method

Cons of the Avalanche Method

Save money on interest. This is the biggest advantage of using this method. Paying off your highest interest debt first can save you thousands.

Less motivating. While paying off an entire debt is motivating no matter what method you use, it may take you a little longer to see that win with the debt avalanche.

Become debt-free faster. If you stick to this strategy, you can become debt-free much faster than with other methods because you’ll be saving money on interest.

Paying off debt with the Debt Snowflake method

The debt snowflake method is a way of finding money for debt in small everyday increments, like couponing, shopping sales, dining in, earning extra cash, and many others. 

In other words, you’re always looking for and making the most out of saved and found money.

For example, you can use an app like Ebates that will find you rebates on the things you already shop for, or you can pick up extra jobs here and there or sell your unused items in a yard sale, or you can pack your lunch for work instead of eating out. 

The point is to use all these little savings or found money to pay toward your debt.

And the best way to do this is to apply even micro-payments to your balances as soon as you get it, which will help you avoid accidentally spending it on something you don’t need.

With the debt snowflake, it doesn’t really matter which balance you choose to pay off first.

In fact, you can spread it out over multiple bills if you’d like.

But it’s a great method to pair with one of the others to quickly decrease your balances and stay motivated at the same time.

Pros of the Snowflake Method

Cons of the Snowflake Method

Starts small. Sometimes starting small is the only thing you can do to pay off debt. And this allow you to throw a couple of bucks here and there toward your debt without feeling the pinch.

Slow progress. Like we said, slow is sometimes the only option, and that’s okay. But if you’re in a lot of debt, these incremental changes can be frustrating.

Builds good habits. The debt snowflake method makes you more aware of your spending habits. For example, if you know you can add the $5 you normally spend on a latte towards debt, you might be more likely to pass on the treat.

Requires organization. Saving money can be a time-consuming process, especially if you’re clipping coupons and trying to shop around. It also requires a lot of organization. But so does hanging onto the spare cash you save or find. To keep from accidentally spending it, you’ll have to transfer it right away or find another system for making sure it goes to the right place.

Creates motivation. You may not be able to see a debt paid off as fast as you can with other methods. But there’s still a little bit of motivation that comes with finding hidden money and watching your balances decrease little by little.

Paying off debt with a balance transfer

If you’re disciplined enough to handle another credit card, a balance transfer is a great way to unload some interest.

Balance transfers work by simply transferring your high-rate balances over to a new card, which often has a lower interest rate.

And some cards even offer a 0% introductory interest rate on the balance you're transferring over, giving you a few months buffer room of being able to make payments without being charged any interest. 

Important note: Keep in mind that transferring your balance does not relieve you from your debt—you’ll still owe the exact same amount of principal as you did on your old card.

The only difference is you’ll be dumping the high interest rates they were charging you, which could mean paying it off much faster and potentially saving you lots of money.

Just to give you an example of how much you could save, let’s say you owe $5,000 on an 18% APR credit card, and your minimum monthly payment due is $120.

If you just pay the minimum due each month, it will take you 66 months to pay it off and you’ll end up paying almost $3,000 in interest and fees. [source]

But on the other hand, if you’re able to transfer that same amount over to a zero-interest card, you could cut that amount down drastically.

Most of these cards are only interest-free for a period of time, however, so to get the most benefit from them, it’s best to pay more than the minimum payment every month.

Paying off debt with a personal loan

The average interest rate for a personal loan vary according to your credit score, but if you have excellent credit, a personal loan could be a good option to pay off some debt because you could get a loan for a 10%-12% interest rate.

When you consider that the average credit card interest rate for new accounts is about 19.24% you can see that having an excellent credit score could save you some money by paying off your credit card balance balance with a personal loan.

As we mentioned above, it's a pure arbitrage play. 

And, it's a pretty straightforward method for paying off debt.

When you take out a personal loan, your bank will usually deposit the funds into your account, and you can do what you wish with the money from there.

In this case, though, it’s important to immediately apply it toward your credit card balance. 

You will not, of course, be getting rid of your debt entirely—you’ll still owe the same principal amount you did before.

But you’ll be paying much less interest, so your payments will probably be less and it should take you less time to pay it off.

How debt affects your credit score

The tricky thing about debt is that you need to take some on in order to help build your credit score.

Well, maybe not debt per se, but you definitely need to borrow money over a long period of time to establish your credit. 

In the credit industry, we call this your "credit utilization" or simply the amount of credit you're using. Most experts tell you to keep this number at 30% of lower.

For example, if you have a credit card with a $10,000 limit, you'd want to keep your balances at $3,000 or lower. If you don't your score could get dinged. 

Why does your credit utilization matter?

Because it accounts for 30% of your credit score, making it the second most important factor when determining your score. 

There are basically two main types of debt reported on your credit: revolving and installment.

And each of these can affect your credit score a little differently.

Revolving debt

Credit cards are the best example of revolving debt.

It’s basically a line of credit extended to you with a maximum amount that you can use when and how you wish. This affects your credit in a couple of ways.

First, your credit utilization ratio will be affected by how much of this credit you use.

But the biggest factor in a credit score is actually payment history, which is just a report of how timely you are with your payments.

And unfortunately, even one missed payment can have a significant impact on your score.

Installment loans

Installment loans include notes such as mortgages or car loans.

These loans are specific amounts and come with a steady payment plan for a certain period of time, though the effects of missed payments and credit utilization are the same for your credit score. 

The only difference is that these loans don’t offer a higher line of credit than what you’re using, so if you don’t have additional credit in the form of revolving loans, you could easily hurt your score with a high credit utilization ratio.

Why credit card debt is so serious

Credit cards are useful financial tools, and we talk a lot about how you can use them to improve your credit score.

But if you don’t use them responsibly and consistently carry a balance, they can get you into some serious financial trouble. 

For one thing, like we pointed out earlier, the average interest rate for a credit card is just under 20%, which is extremely high when you consider most home, personal, and student loans only charge interest in the single digits. 

For this reason, making only your minimum payments can cause you to take years to pay off your balance.  

For example, if you had a $3,000 balance with an 18% interest rate and you only made a minimum payment of $75 per month, it will take you 222 months to get rid of your debt. [source]

And we know credit card debt is a serious problem when 70% of Americans say they can’t pay theirs off this year.

What to do when your debt situation is serious

If you find yourself slipping under a mountain of debt, it’s never too early to get help. And there are some very good services available for people who need them. 

Credit counseling

Your best option is probably credit counseling.

Credit counselors work with consumers to help them better manage their money and debts.

They can help you create a budget and often offer seminars and other hands-on training events. And much like a mental health counselor, you’ll usually see them on a regular basis until you’ve developed, and are able to maintain, a solid financial plan. 

Many credit counseling services are available in person, but nowadays, you can find a ton of them online as well.

The most reputable ones are also usually non-profit companies with a mission to get people out of debt, though that doesn’t necessarily mean they’re free. You’ll typically still pay some type of fee.

But if they’re a respectable company, they’ll be completely upfront about this and they won’t cost you a fortune. After all, they’re supposed to be helping you cut costs, not add to them.

Debt settlement

Another option is debt settlement, which just means settling with your creditors for less money than you owe.

Sometimes, if you’re behind on your payments, creditors will work out some kind of arrangement with you, realizing that recovering even a little of what you owe is better than nothing. 

You can certainly handle debt settlement yourself, calling all your creditors to try to negotiate. But it’s usually more effective to hire a debt settlement service. 

These services are sometimes offered by legal groups, and what they do is contact your lenders and negotiate on your behalf.

Some of them also set up an account for you to make monthly payments to that they will use for paying your settlements.

Bottom line

If you start to get in a bind with your credit cards, the best thing to do is to stop using them immediately and find creative ways to pay them off.

But if you feel you’re unable to handle things yourself, don’t be afraid to ask for help.