Eliminate Credit Card Debt
Understanding the Best Ways to Relieve the Stress of Credit Card Debt
Credit cards can be invaluable financial tools. However, they can also be traps. According to CNBC, 55% of Americans who own credit cards have debt. In all, US households actually owe around $26 billion in credit card debt alone, with The Balance reporting that the average debt load is $5,839 per card. That doesn’t count auto loans, home mortgages, school loans, or other forms of debt. Below, we’ll provide 4 methods to eliminate credit card debt.
Combine those skyrocketing debt levels with increasing interest rates and you have a recipe for disaster. There is good news, though. If you’re one of the millions of Americans struggling to keep your head above water due to mounting credit card debt, there are ways to get out of that situation. Below, we’ll discuss several solutions to aggressively pay down your debt.
Debt Snowball Method
The debt snowball method is one of the easiest to understand options out there, and it is also one of the most effective. It really only requires that you pay off your lowest-balance credit cards first, while continuing to make minimum payments on your larger debts. Once the smallest debts are paid off, you move on to the next lowest. To get started, follow these steps:
- List all your credit card debts, beginning with the lowest amount owed. If two debts are roughly the same, the one with the higher interest should be listed first.
- Pay the minimum payment on all credit card debts.
- All extra cash should be directed to paying off your smallest debt load. Pay the minimum payment, plus as much extra as you can until that debt is paid off.
- When you pay off a card, roll the old minimum payment and any extra cash into the payment for the next lowest.
- Repeat this process (snowballing) until you’ve paid off all your debts.
The Debt Avalanche Method
This method is similar to the debt snowball method, but there are some key differences. It’s also called the “debt stacking” method. Instead of focusing on the balances of your credit cards, you’ll focus on the interest rate being charged. This is the best option for those who have very high-interest credit cards. Of course, you’ll continue to make minimum payments on all cards throughout the process. Note that this method can include other debts, such as mortgage payments, car loans, and the like.
- List all of your credit card debts, beginning with the highest interest cards and moving to the lowest. If two cards have roughly the same interest, the smallest debt should be paid first.
- Pay the minimum amount plus any extra money you have on your highest interest debt until it is paid off.
- When you’ve paid off your highest interest debt, roll that minimum payment and any extra money into paying off the next highest, and so on.
- Continue this process for all of your debts, rolling the minimum payments and any extra cash available into the next lowest debt until you are debt-free.
The Milestone/Chunk Method
This particular method doesn’t carry the same financial benefits that the debt snowball and debt avalanche methods do, but it can help those with a lot of credit card debt get some perspective. Often, the thought of paying off tens of thousands of dollars in debt is incredibly daunting. That can sap your momentum. Instead, break your debt up into chunks, or set milestones. Here’s an example:
Suppose you owe $25,000 in credit card debt. That’s a big number – one that most of us would happily avoid thinking about. However, if you break that into chunks, it becomes easier to deal with. For example, rather than $25,000 in a single amount, try thinking about paying off your debt in $5,000 chunks – you’d only have five milestones to reach before you were completely free of credit card debt.
With this method, you get more peace of mind about your debt payments, and you can incorporate it with other methods, too.
The Debt Snowflake Method
The milestone/chunk method is a great option to combine with the debt snowflake method. Where the snowball and avalanche methods require that you budget for additional cash to pay down debt, the snowflake method is a little different.
In this scenario, you’ll take small amounts of cash that you discover during the month and pay those amounts toward your debt. For example, instead of buying that $7 cup of coffee every day, you could put that money toward paying off credit card debt. Just skipping your costly cup of joe each morning for a month could give you an estimated $210 extra per month (based on $7 per cup), or $2,555 per year.
Another option would be to use coupons at the grocery store. Whatever money you save on buying groceries could be added up over course of the month and then used to pay down debt. You can accelerate your ability to pay off debt by cutting other costs out of your life – that streaming music subscription? Cancel it. That streaming TV service you never use? Cut it out. Roll any savings into your credit card payments and you might be surprised at just how quickly your debt level drops off.
We’ve discussed four ways to eliminate credit card debt, all of which can help, although you’ll need to determine which one is right for your situation. If your budget is super tight, the snowflake and milestone/chunk methods are the better options. If you can set aside a set amount of extra cash each month, then both the avalanche and snowball methods are worth considering.
In all situations, you’ll need to be committed to paying off your debt. Put as much money as you can each month toward your debts. Be patient. Find ways to cut down on other expenses so that you can increase what you’re paying toward your credit cards. It will take effort and time, but you will eventually get to the point that you’re free of credit card debt and then you can turn your attention to other sources of debt, such as paying off your car and your home.
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