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4 strategies for credit card debt consolidation and payoff

Learn more about each strategy to find the right option for you.

A man holding a credit card while using a laptop.

If you have credit card debt, you’re not alone: According to estimates by NerdWallet, total American credit card debt topped $905 billion in 2017 — an increase of nearly 8 percent from the previous year. And each household that carries credit card debt owes an average of almost $16,000.Footnote Reference

If there’s one achievable financial goal you can make for the year, it’s to reduce — if not eliminate — what you owe on credit cards. You’ll need a plan, but the results are worth it: You’ll break free from that monthly budget line item and the ever-increasing credit card interest. Here are four strategies to consider. Select the ones that work for you.

Pay a set amount that’s more than the minimum.

Many people pay only the minimum payment on credit card balances, setting themselves up for a long payback. Instead, try to pay the same amount — above the minimum — for each credit card, and pay that total even as your debt decreases. This strategy directs additional resources toward the principal, helping to lower payoff time and interest.

Pay off the highest-interest-rate credit card first.

More interest equals more debt, which is why advocates of what’s known as the “avalanche approach” insist that the immediate focus of any debt-reduction program should be the balance on the highest-interest-rate card. This helps eliminate extra interest charges. However, if you have a large balance on your highest-rate card, it may take longer to pay off the debt, which may cause you to lose motivation.

Pay off the lowest-balance credit card first.

Sometimes referred to as the “snowball approach,” this method of paying off debt focuses on the smallest balance first, which can help build motivation to continue paying down credit card debt. Once that balance is paid off, put the monthly payment toward another credit card balance — perhaps one with a high interest rate.

Transfer balances for credit card debt consolidation.

If you have a good credit score, you may be able to qualify for a zero- or low-percent balance transfer (consolidating debt from several credit cards into a lower-interest-rate card). But read the fine print: If there’s a transfer fee, make sure you’ll save enough on the temporary interest reduction to make the cost worth it. Also, be aware of when the introductory low-rate period ends, and try to pay off all, or as much as you can, within that window before the interest rate goes up and adds to your debt.

Avoid adding new debt.

With any of these strategies, try to stop using your credit cards while you work to pay them off. (This may require a careful rework of your budget.) But if you must charge, make sure you have enough in cash to pay off the purchase in full.

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