Financial advisors recommend two main ways to pay off your credit card debt: the debt snowball and debt avalanche approaches.
With the debt snowball method, you pay off your credit card debt from smallest to largest. Devote any extra money you have each month to pay off the credit card on which you owe the least while making the minimum payments on your other accounts. Once you pay off that first card, pay off the credit card account with the next-highest balance. Keep going until you’ve paid off all your cards.
The benefit here? You’ll get a quicker psychological boost when you pay off that initial smaller debt. And every time you pay off another debt? You’ll get that same boost.
The debt avalanche approach is similar, but with this method, you pay off the credit card with the highest interest rate first, regardless of its balance, while making the minimum payments on your other cards.
Once you pay off that first card, you then pay down the balance on the card with the next-highest interest rate, proceeding this way until you’ve paid off all your credit card debt.
Why the debt avalanche method makes the most financial sense
The debt avalanche method is the best way to pay down your credit card debt from a purely financial standpoint. Why? By eliminating your highest-interest-rate debt first, you’ll save money.
Credit cards charge notoriously high interest rates, sometimes as high as 29.99%. When do you pay off any debt with rates that high? You can save hundreds of dollars a month in interest charges.
Here’s an example of how much a card with a high interest rate could cost you if you don’t pay down this debt aggressively: Say you have $6,000 worth of debt on a credit card with an interest rate of 24%. If you make only the minimum payment on this card each month, it will take you 303 months to pay off that debt if you don’t make any additional charges on that card. During that time, you’ll pay $11,332.22 in interest.
As you can see, by paying off that debt as quickly as you can, you can save a significant amount of interest payments.
While the debt avalanche method makes the most financial sense, this doesn’t mean that the debt snowball method isn’t practical, too. This method might make more sense if you need quick victories to stay motivated as you work to pay off your credit card debt. Maybe paying off a card in full – even if its balance is lower than others – will give you the psychological motivation to keep paying off the rest of your credit card debt.
But if you’re only looking to pay off your credit cards while spending the least amount? The debt avalanche method is the better choice.
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