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The best ways to pay off credit card debt

Yahoo Personal Finance· Getty Images
Updated 7 min read

Credit card debt can be a significant financial burden, and if you have a sizable balance, paying it down can be a daunting task. The good news is that there are several options, giving you the flexibility to find the best way to pay off credit card debt that works for your situation.

Debt consolidation, accelerated payoff methods, and a debt management plan are the primary ways to pay off credit card debt.

However, you don't have to pick just one of these strategies. Depending on your situation, you may be able to improve your efficiency and save time and money by using multiple approaches. Here are the best ways to pay off credit card debt.

Debt consolidation involves paying off one or more credit card balances with another credit card or a consolidation loan. The most common ways to consolidate debt include balance transfer credit cards and personal loans, but you may also consider other options. Here's what to know about each.

A balance transfer credit card is a type of credit card that offers an introductory 0% APR promotion on balances transferred from another credit card. Depending on which card you choose, you may be able to pay down your debt interest-free over 12 to 21 months.

Keep in mind that these cards typically charge an upfront balance transfer fee — usually 3% to 5% of the transfer amount — which is tacked onto your new balance. Also, there's no guarantee that you'll get a high enough credit limit with a balance transfer card to cover all of your debt.

Finally, balance transfer credit cards typically require good or excellent credit, which means a FICO credit score of 670 or higher. With that in mind, here are some of the best options if you're considering a balance transfer:

Debt consolidation is one of the most popular uses among personal loan borrowers. While you won't get a 0% APR promotion, the average personal loan interest rate is lower than the average credit card interest rate — 12.17% for a two-year personal loan vs. 22.77% for a credit card, according to August 2023 data from the Federal Reserve.

Additionally, personal loans provide you with a fixed repayment term, a feature you won't get from a credit card. If you've been stuck in a minimum payment trap, a personal loan could give your payoff plan more structure. Just be sure you can afford the monthly payment.

One thing to note is that some personal lenders charge an upfront origination fee, which can range from 1% to 12% of your loan amount — this fee is deducted from your loan disbursement, so you'll need to borrow more than what you owe to cover the full amount.

While personal loans are available to borrowers across the credit spectrum, you'll likely need good or excellent credit to qualify for a low interest rate and no origination fee.

Depending on your situation, you may also consider other types of consolidation loans. If you own a home and have a significant amount of equity, for instance, you may be able to get a home equity loan or home equity line of credit.

Because these loans are secured by your home, they can often offer lower interest rates than unsecured personal loans and credit cards. That said, some lenders charge hefty closing costs and other fees, which can range from 2% to 5% of your loan amount or credit limit.

Also, if you fail to repay a home equity product, you could lose your home.

Another option is a 401(k) loan, which involves you borrowing from your own retirement plan. These loans don't require a credit check, and the interest rate is generally low.

You'll typically have five years to repay the debt, but if you leave your employer for any reason, it may come due sooner. If you can't pay it off, it'll be treated as an early withdrawal and be subject to income taxes and a 10% penalty. What's more, it could negatively impact your long-term earnings growth.

If you're managing multiple credit card balances and you don't want to consolidate — or you want to make the most of your consolidation — consider one of these accelerated debt payoff methods.

This approach involves paying the minimum amount due on all of your credit cards except for the card with the lowest balance. If you have extra cash you can put toward that card each month, add it to the minimum payment.

Once you've paid off the lowest balance, you'll take the money you were putting toward it — including the minimum payment and the extra amount — and add it to the minimum payment on the card with the next-lowest balance.

You'll keep doing this with each card, creating a snowball effect that increases your monthly payment each time you pay off a balance until you're debt-free.

The debt avalanche approach works the same as the debt snowball strategy. The only difference is that instead of targeting your lowest balance first, you'll focus on the card with the highest interest rate.

This option may be a better fit if you're disciplined and want to maximize your interest savings. If you've struggled to tackle your debt in the past, however, the debt snowball may give you more wins early on in the process, helping you to stay motivated.

With the debt snowflake method, you'll focus on applying small daily savings to your credit card balances. For example, if you're paying for a streaming service on your own, you could split it with a friend or family member and add the monthly savings to your credit card payments.

You can do the same with other things like money saved at the grocery store by using coupons or opting for generic brands, gas savings by carpooling with a co-worker, cash back earned with your credit cards, and more.

The biggest drawback of this approach is that it requires a lot of effort to keep track of your day-to-day savings and apply it to your debt. But like real snowflakes, a lot of small savings can add up to a significant amount.

If you don't have multiple credit card balances or you're using a consolidation loan, the debt snowball and avalanche methods won't help. In this case, you may consider just making extra payments on your single balance.

If your credit is in poor shape or your credit card debt is too out of control for other methods to work, consider consulting with a credit counselor to see if a debt management plan is right for you.

With a debt management plan, the credit counselor can negotiate with your credit card companies and potentially lower your interest rates and monthly payments. If you're behind on payments, a counselor could also get your card issuer to bring your account to current status.

You'll then get set up on a repayment plan for three to five years, making one monthly payment to the agency, which will distribute it to your creditors.

Like other debt payoff approaches, however, this one has some potential downsides. For starters, debt management plans typically require an upfront setup fee and ongoing monthly fees. Additionally, your credit card companies may close your accounts, which can damage your credit score temporarily.

But if you want to avoid more drastic steps like debt settlement and bankruptcy, a debt management plan is worth considering. You can find a good credit counselor through the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Having a lot of extra money to put toward your debt can improve your effectiveness. But if your budget is tight, you may need to also focus on ways to earn extra money or cut back on certain discretionary spending.

Depending on your credit history, you may still be able to take advantage of some of the methods we've covered. But first, take a look at your budget over the past few months to understand where your money is going and evaluate your options.

Even if you're not sold on a debt management plan, it can still be worth consulting with a credit counselor, who can provide you with free personalized guidance for your situation.

This article was edited by Rebecca McCracken

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