We know how incredibly easy it is to rack up credit card debt.
More than 40% of American households carry a credit card balance, with an average balance of more than $9,000, according to a study from the financial data website ValuePenguin.
But here’s the tricky thing about credit cards: They only benefit you when you’re building credit and receiving perks — but not when you’re paying interest. If you’re paying a lot of interest on your balances, credit card companies are making money off of you.
Your cards are using you, not the other way around.
With average interest rates on new credit cards north of 17%, according to CreditCards.com, paying them off is a smart move. You can do it. And it’ll be worth it.
5 Ways to Pay off Debt From Multiple Credit Cards
Before you start, try to stop using your credit cards altogether until you can use them without putting yourself in financial risk. Though the specifics will vary based on your situation, we only recommend using credit cards if:
You don’t have any debt outside of a mortgage or student loans.
You have an emergency fund with three to six months of expenses saved.
You can pay off your balance in full every month.
However you do it, make paying off your credit cards — and learning to use them responsibly — a high priority.
First, determine how much credit card debt you have. You can do this using a tool like Credit Sesame, a free credit monitoring service.
Credit Sesame will also show you how to raise your credit score. James Cooper, a motivational speaker, raised his credit score 277 points following suggestions from the site.
Then choose your weapons! We’ll go over five different methods for paying off your credit card debt.
1. The Debt Avalanche
Instead of looking at your debt in its entirety, we recommend approaching it bit by bit. By breaking your debt down into manageable chunks, you’ll experience quicker wins and stay motivated.
Two popular ways to break down debt repayments are the debt avalanche and debt snowball methods.
Using the debt avalanche method, you’ll order your credit card debts from the highest interest rate to the lowest. You’ll make minimum payments on all your cards, and any extra income you have will go toward the highest-interest card.
Eventually, that card will be paid off. Then, you’ll attack the debt with the next-highest interest rate, and so on, until all your cards are paid off.
2. The Debt Snowball
With the debt snowball method, you’ll order your debts from the lowest balance to highest, regardless of the interest rates on the cards. You’ll make minimum payments on all your cards, and any extra income will go to the credit card with the smallest balance.
Starting with the smallest balance allows you to experience wins faster than you would with the avalanche. This method is ideal for people who are motivated by quick wins, but it has a downside: Those who choose it could end up paying more interest over the long term.
Here’s an example of how each method would work if you’re paying off four credit cards of varying balances and interest rates.
$654 with 0% interest
$5,054 with 15% interest
$2,541 with 23% interest
$945 with 17% interest
If you followed the avalanche method, you’d pay off card No. 3 first, followed by No. 4, No. 2 and No. 1. If you followed the snowball method, you’d pay off card No. 1 first, followed by No. 4, No. 3 and No. 2.
Let’s say you have $600 per month to put toward debt. Using the snowball and avalanche comparison calculator from Dough Roller, you can see that it would take you 18 months to pay all of your cards off using either method.
The debt avalanche method would save you $105.73 of interest in the end, but you’d pay off your first card six months earlier by going with the snowball.
Choosing the right method comes down to deciding whether you’d rather get quick results or save money on interest. We encourage you to check out Dough Roller’s calculator yourself, so you can calculate what each method would cost you.
3. The Balance Transfer
If you have good to excellent credit (typically a FICO score of 670 or above) and can feasibly pay off your debt within a year, a balance-transfer credit card is a great option. Balance-transfer cards can save you money on interest charges by letting you transfer the balance of a card with a high interest rate to a card with 0% interest.
Most of these cards offer 0% interest for 12 to 18 months with no annual fee. They generally have a 2% to 5% balance-transfer fee, but you can easily find balance-transfer cards with no fee. A higher credit score will help you qualify for a card with better terms.
4. Take out a Loan
You might look at getting a loan to consolidate and refinance your debts.
If you get a loan with a lower interest rate and pay off your credit cards, that lower rate could potentially save you thousands of dollars in interest.
This is a realistic way to pay off credit card debt if you currently have little or no money to put toward it.
Let’s look at two options here: A personal loan or a home equity loan.
Online marketplaces will allow you to prequalify for a personal loan without doing a hard inquiry of your credit, so if you want to shop around, head there first. It won’t affect your credit score.
A good resource here is Fiona, a search engine for financial services, which can help match you with the right personal loan to meet your needs. It searches the top online lenders to match you with a personalized loan offer in less than a minute.
Home Equity Loan
If you own a home with equity, you have three ways to borrow money against the value of your home: a home equity loan, home equity line of credit or a cash-out refinance.
With a home equity loan, the lender gives you your money all at once, and you repay it at a fixed interest rate over a set period of time.
With a home equity line of credit, you’re given a limit to borrow. Within that limit, you can take as little or as much as you need whenever you want.
With a cash-out refinance, you refinance your first mortgage with a mortgage that’s slightly more money than your current one, and pocket the difference.
For homeowners, these options will most likely offer the lowest interest rates. But they’re also the riskiest, because your home is the collateral — something you own that your lender can take if you don’t pay off the loan.
5. Debt Settlement
The world of debt collections and creditors can be confusing, intimidating and sometimes even illegal. There’s a common misconception, for example, that someone can take your house or you can go to jail for not making your payments. But credit card debt is unsecured debt, meaning no one can put you in jail or take your house if you don’t pay it.
If you’re being harassed by creditors or have circumstances that make your debt repayment confusing, don’t give up before finding out your options for assistance.
Debt Management Program
With a debt management program, a credit counseling company will handle your consolidation in hopes of getting you better interest rates and lower fees. You’ll be assigned a counselor, who will set up a repayment and education plan for you. This program is specifically for unsecured debt, like credit cards and medical bills.
A debt management program pays your creditors for you to ensure you stay current on your debt payments. Your credit score may even improve during the program. But if you miss a payment, you can be dropped, and you’ll lose all the benefits you gained.
Debt management plans usually don’t reduce your debt, but they may reduce your interest rates by as much as half or extend your payment timeline to make paying your debt more manageable.
Credit Card Debt Settlement
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