2 Ways to Pay off Credit Card Debt

Different Denominations of US Currency and Credit Cards, Close-Up

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Paying back your credit card debt isn't nearly as easy as actually getting into credit card debt. But, it can be done. With a plan, dedication, and discipline, you can achieve a life free of credit card debt.

How Much Can You Pay?

The first step to paying off your debt, even before choosing which debt to pay, is to figure out how much you can afford to pay on your credit card debt each month. Your monthly budget is your best way to know how much you can afford to pay. If you don't already have a budget, now's a ​good time to start one. 

Start by adding up all your net monthly income from all sources.

Then, add up all your monthly expenses, including the minimum payments on all your credit cards and loans.

Subtract your expenses from your income. The number you get is your net income, what's leftover after you've paid all your expenses. This is what you can afford to send to your creditors every month. You're not limited to this amount. Look for ways to generate more money to put toward your debt. The more you can put toward your debt, the faster you'll be able to pay it all off.

Now that you know how much you can spend paying back your credit cards, the next step is to figure out the order you want to pay your credit cards.

Two Payback Methods

Here are the two best methods for paying off your credit cards.

  1. Highest interest rate first. Paying off the credit card with the highest interest rate will save you money in the long run, especially if the highest interest rate credit card also happens to be the card with the highest balance.
    When the highest interest rate card also has the highest balance, it will take the longest to pay off. It's easy to lose motivation paying off your debt when it takes too long. That's why the "lowest balance first" method might be a better choice.
  2. Lowest balance first. There are immediate tangible benefits to paying off the credit card with the lowest balance first. The first balances are easier and quicker to pay off. When you finally pay off a bill, the feeling of accomplishment is motivation to keep you going.

Snowball vs. Avalanche

Paying off your balances based on interest rate is known as the "debt avalanche" method. Paying starting with the lowest balance is the "debt snowball" method.

Choosing between these two methods can be tough. If you're interested in saving money in the long run, start with the highest interest rate balance first. Getting rid of high interest rate debts cuts down on the amount of finance charges you pay. Or, if you want to knock some accounts out quickly, choose a low balance debt to start out with.

Then, write your debts down in the order you're going to pay them, either from highest interest rate to lowest interest rate or from lowest balance to highest balance. Write down the interest rate, balance, minimum payment. Then, allocate all the extra money you have to paying off the credit card at the top of the list. You'll send only the minimum payment to all your other credit cards.

Once you've completely repaid the first credit card, cross it off the list and focus on the next card on the list. As before, put all the money you can afford to that credit card. Continue this process until all your credit cards have have been paid off.

It can be helpful to use an online credit card payoff calculator to help you put together a plan to pay off your credit card debt. Or try a more robust solution, like debt reduction software. With both, you can even compare methods to see which saves money and which gets you out of debt faster.