We are America and we have an addiction. We live beyond our means, spend unconsciously, do too much therapy shopping, live the “swipe it and forget it lifestyle,” use whatever colorful phrase you like.
Americans passed two milestones in 2018. The first is we, as a country, exceeded $1 trillion in credit card debt. As we know that credit card transactions don’t stop after we swipe our credit cards, it gets worse.
Consequently, Americans paid $104 billion in credit card interest and fees for the twelve months leading up to August 2018. That’s $823.96 in interest and fees for every household in the U.S. with a total of 126.6 million households. That’s $823.96 just for the privilege of carrying $1 trillion on our collective credit cards. To be sure, approximately half of those households don’t carry credit card debt. That means the rest are getting hit hard.
What would you do with $823.96? It’s not a lot of money but consider that the average American can’t afford a $400 emergency. A moderate amount of leverage can be good, but Americans are over-leveraged and it’s hurting marginalized communities hardest.
For example, the average LGBTQ family carries $12,065 in credit card debt while the average family in the general population carries $10,400 in credit card debt. That same study, the State of the American Family Survey performed by MassMutual, also found that the average African American family has $10,615 in credit card debt. While that’s close to the average for the overall population, the survey found the credit card balance for African American families is particularly challenging considering this group’s lower average household income. Even with the higher average incomes, the average affluent American reported currently carrying $11,000 on credit card debt.
While most Americans have no problem paying 20% interest or more on the cheapest of purchases, they balk at paying for help with paying off their credit cards. Unfortunately, many don’t succeed without accountability, coaching and a step-by-step support system.
For those who want to go it alone despite it being a recurring New Year’s Resolution and with the wealth of information on the internet, these five strategies for paying off credit card debt are for them.
1. The Snowball Method
A rolling snowball gets progressively larger. Such is the strategy of the Snowball Method for paying off credit card debt. With the Snowball Method, you’re paying off your credit card debt from the smallest balance to the largest balance all while making minimum payments on your other debts. Once your smallest balance is paid off, you pay off your next smallest balance using the money that’s no longer going toward your credit card with the smaller balance. Continue this process until you’re debt free.
The reason this method works for so many is that it gives quick, psychological wins early. Paying off one or more credit cards in a short span of time feels good and can be motivating, especially as you take on the challenge of becoming debt free.
There are a few risks with the Snowball Method. The first is that it will possibly cost you more than the following methods because you’ll likely carry larger balances on credit cards with higher interest rates for longer. Likewise, it’s the slowest method for paying off your credit cards because you’re focusing on the smallest balances first, not the most expensive debt. That leads to its third challenge.
Because it can take so long to pay off credit card debt with the Snowball Method, you run the risk of losing the motivation you had with the quick wins early in your debt journey. Consequently, you might not become debt free.
That said, the Snowball Method has many fans and, even if you don’t completely pay off your credit cards, any progress is progress.
2. The Avalanche Method
An avalanche gets progressively faster. With the Avalanche Method for paying off credit card debt, you first pay off your credit card with the highest interest rate while making minimum payments on your other credit cards. When your highest interest rate card is paid off, use the additional money to pay off your credit card with next highest interest rate. Continue until all your credit cards are paid off.
The reason the Avalanche Method works is that, of the two most popular methods for paying off credit card debt, it’s faster and saves more money. The problem with the Avalanche Method is that it feels a lot like watching the tortoise race the hare when you first start, though it can feel as exciting as a Greyhound race toward the end.
The Avalanche Method has its fans, and it’s a good option, even if you only pay off a portion of your credit card debt. However, lesser-known methods may be better options for most people.
3. The Debt Lasso Method
The Debt Free Guys™ Debt Lasso Method is a combination of debt consolidation and the Avalanche Method. The Debt Lasso Method has you get all your credit card interest rates as low as possible, ideally transferring to 0% interest rate credit card offers with no annual fees. Almost anything lower than what you’re paying now, though, is helpful.
Next, pay off your credit card debt as fast as possible by making whatever payments you were before your credit card transfers plus all your interest savings to your credit cards. Follow the Avalanche Method to first pay off any remaining credit cards with interest rates, highest to lowest. Continue until your credit card debt is completely paid off.
The Debt Lasso Method isn’t without its consequences, too. You’ll likely pay a fee, anywhere from 3% to 5%, to transfer your debt from your original cards to your new card. These costs are typically recouped in interest savings if you stick with the Debt Lasso Method until all your credit cards are paid off.
If you miss or are late on a payment to your new credit card, you may forfeit your low-interest rate for a higher rate. Such an error could negate the value of the Debt Lasso Method. Therefore, read and understand the fine print on any offer you consider using, and avoid missing or being late on your payments.
With these caveats in mind, the Debt Lasso Method is the fastest and cheapest way to pay off credit card debt.
4. The Debt Spiral Method
The lesser-known Debt Spiral Method is a combination of the Snowball and Avalanche methods. It was created by a now inactive blog, The Frugal Fan.
Rather than focusing on the credit card with the smallest balance or the highest interest rate first, the Debt Spiral Method suggests dividing your credit debt balances by their interest rates and then paying off your credit cards from the smallest to largest calculation.
The Debt Spiral does two things. It lowers the total interest you’d pay using no strategy and more evenly spreads out your wins. This can help keep you motivated over the duration it takes to pay off your credit cards.
While this method does give you the best of both the Snowball and Avalanche methods and it’s more cost-effective than the Snowball Method, it’s more expensive than the Avalanche and Debt Lasso methods.
5. The Just Hustle Method
The Just Hustle Method was coined by us for the purpose of including the strategy of simply working hard to pay off all your credit cards. Many people have fluctuating or inconsistent incomes. Follow any method designed around a traditional pay cycle if you’re not on a traditional pay cycle can feel like you’re set up for failure the moment you veer off course.
Likewise, the previous four methods rely on you no longer using your credit cards. For many, unfortunately, that’s not an immediate option.
Therefore, at the very least, make your minimum monthly payments. When you have the extra money, whether you have just a few dollars or a large amount, put it toward the credit card that makes the most sense at the time.
To be fair, these aren’t the only solutions for paying off credit card debt. Other options include filing for bankruptcy, hiring a debt consolidation company and filing for a settlement. All of these have their pros and cons, not least of which is they can be extremely expensive. As for the fastest and cheapest ways to pay off credit cards, these five are your best options.