The Fastest Way to Pay Off Credit Card Debt
If you're ready to tackle a mountain of debt and don't know quite where to start, I can totally relate. A few years ago, that was me. Here's what I've learned about the best ways to pay off your credit cards and other debts.
My journey to pay off debt actually is still a work in progress. I was not always smart with my money when I was younger. Combine that irresponsibility with the cost of paying for grad school and the financial wreckage left from the last economic recession and welp. There you go.
For years I made minimum payments on everything and threw an extra $20 at random credit cards here and there, but without any kind of strategy or tracking in place, I was really just spinning my wheels.
A few years ago, I decided enough was enough and truly committed to paying everything off, even if I was only chipping away at it, and that required a formal strategy with a tracking solution. I built my Avalanche spreadsheet and never looked back. While I've got a long way to go, I've successfully paid off more than $10,000 to date, and raised my credit score from "average" to "good" in the process.
This isn't one of those "I paid off $50,000 in a year while living rent-free with my parents who paid for everything" stories that drive everyone insane. While my life is not completely devoid of privilege, my experience is more or less how repaying debt actually looks in the real world – slow, uneven, occasionally messy.
Quick fixes are rare, and you won't find them here. The advice below is all based how debt repayment actually works.
The Quickest Ways to Pay off Debt
There are several methods to consider if you've got debt to pay off. The key element to all is that you're paying more than the minimum payments on something in a strategic manner.
The Avalanche Method
When I decided to make a project of paying off my debt, I chose the Avalanche Method. It's called an "avalanche" because you're knocking out the heavy stuff at the top first. The premise is simple: Pay off the debts that are costing you the most before anything else. To do that, you line all of your debts up with the highest interest rates first. I did this using a not-very-fancy spreadsheet:
Then you start throwing extra payments at the debt with the highest interest rates while paying only the minimum required on everything else. You should be laser focused on your most expensive debt, period.
In my case, the highest interest rates belonged to credit cards. Even though I could have easily paid off my car and the idea of owning it free and clear was attractive, it was also the debt with the lowest interest rate – meaning that the interest payments were much cheaper than the credit cards.
A couple more notes about my sheet:
First, although the sheet makes it look like my car is paid off, that's not exactly true. It was refinanced as part of a zero-interest loan from my parents, which is still on the board.
Second, I also have a "Daily Spending" section at the top for cards that I use for travel rewards or extra discounts. Since they're effectively a stand-in for my checking account, they're meant to be paid off in full every month. So while my debt totals include current balances, they don't always reflect the most recent payments and I find it easiest to hold them apart.
Pros: Strictly by the numbers, the Avalanche Method is the fastest and cheapest route to paying off your debt.
Cons: If your highest interest rate debt also carries a high balance, it can be frustrating to be making so many extra payments on it month after month. It can seem like you're not making much progress.
The fix for that con: In addition to your Avalanche spreadsheet, create a tab with a running tally of the amount of debt reduced over time, and focus on that number instead. Whenever it feels like I'm not making any headway, seeing exactly how much debt I've paid off is rewarding, and even a relief. Here's a peek at mine:
You'll notice that not every single entry is green. This journey is not a straight line, and that's okay. Life happens. I see that red and let it motivate me to get back on track.
You may have also noticed that I keep the credit cards I've paid off on my worksheet in the section below active debt. It's an excellent reminder of the progress that I've made to see them there with a column of zeroes.
The Snowball Method
Personal finance guru Dave Ramsey is a big proponent of the Snowball Method. This strategy involves arranging your debts from smallest to largest, and then paying off your smallest debts first. The debts you tackle get bigger as you go, along with the amount of cash you've freed up to pay them down – like a snowball rolling downhill.
Pros: We find it very satisfying as human beings to cross items off our lists. Getting some quick wins in early is a great psychological trick that helps keep you engaged and motivated. people who choose the Snowball Method are 14% more likely to stick with it.
Cons: Because you're not paying off your highest interest debt first, it costs more and takes longer to pay off than the Avalanche Method.
The Snowflake Method
While the Snowflake Method isn't exactly a separate method from Avalanche or Snowball, it can be a good way to supplement your efforts in whichever method you choose. The Snowflake Method is simply the practice of applying small windfalls to your debts. Individually, snowflakes seems small, even inconsequential. But what is a snowball or an avalanche if not a collection of snowflakes?
Found $5 on the sidewalk? Throw it at your debt. Got $15 left over from your monthly lunch budget? Throw it at your debt. Neighbor pays you $50 to feed her cat while she's traveling? Sold a couple barstools on Craigslist for $20? You get the idea. Who cares how small the payments are – that all adds up to $90 of debt you no longer need to worry about.
Pros: It may not seem like much, but it's steadily chipping away at the sum total. Small wins are still wins.
Cons: Snowflaking does involve making lots of small extra payments, so tedium is a risk. And sometimes you really just want to spend that extra $5 on a pumpkin spice latte.
The Tsunami Method
While other debt payoff methods focus on the numbers, the tsunami method recognizes that the emotional baggage attached to your debt can vary – and takes that emotional cost into account when prioritizing what to pay off first.
In fact, my own debt strategy is a combination of Avalanche and Tsunami. My parents graciously offered me an interest-free loan, and while it sits at the bottom of my Avalanche, I set the minimum payment as high as I could in order to pay it off as fast as possible. Owing money to my parents feels heavier than my student loan and credit cards, so paying it off is a priority.
Pros: Shedding emotional baggage is always a good thing. If it helps motivate you to pay down your debt faster, great!
Cons: It's a very non-mathematical approach that probably will cost you more money over time than an Avalanche.
Make Your Own Winter Storm
Not ready for a full-on Avalanche, but also want to get rid of that debt as soon as possible? There's absolutely nothing wrong with running a Snowball/Avalanche mashup. Kick things off by tackling one or two smaller debts, then once you're feeling all the good feelings that come with crossing them off your list, switch tactics and tackle the high-interest debt.
Pros: Finding a combination that works for you gives you the best of both worlds – the motivation of a Snowball and the speed of an avalanche.
Cons: The only negative here is that it's still not going to be as fast as a pure Avalanche Method, but if the result is that you stick with it when you otherwise wouldn't, you're still ending up in a much better place.