2 Methods to Reduce Credit Card Debt

September 28, 2021

2 Methods to Reduce Credit Card Debt

2 Methods to Reduce Credit Card Debt

As you probably know, Americans are drowning in credit card debt. Research shows that the average American household has $15,654 in credit card debt.

Many of us would like to get out of the rat race and pay off our debts once and for all.

The two methods described below can help anyone do this or at least put a serious dent into their credit card balance (and maybe start living more frugally!).

1.) The Debt Snowball Method

Of course, there are many ways to pay off your debts. For example, some people advocate doing them smallest-to-largest while others swear by doing them interest-rate-highest-to-lowest (interest rates vary depending on the cards' issuers).

However, I personally prefer the debt snowball method. It's an "up-front" approach that allows you to see results quickly.

Here's how it works:

  1. List your debts from lowest to highest.
  2. Pay the minimums on all but 1 card (or as many as you can).
  3. Put EVERY SINGLE CENT YOU HAVE onto the debt with the smallest balance.
  4. Once #3 is paid off, repeat steps 3-4 with the next smallest remaining balance.

Remember: It takes 21 days for a habit to form and that's about how long it will take you to get used to living without that credit card and paycheck!

Be patient and KEEP GOING!!!

If you're disciplined and dedicated you'll be shocked at how fast your debt can melt away!

Here's an example of this 'in real life'. Let's say you have the following credit cards:

  • Card A with a $270 balance
  • Card B with a $700 balance
  • Card C with a $1,500 balance
  • Card D with a $10,000 balance

You would pay off card B because it has the lowest balance. Once that is paid off, you would then take the money being thrown at card B and throw it at card C. This keeps going until all your cards are paid off!

The real beauty of this method is that people can see immediate results which can encourage them to pay off their debts more quickly. Oftentimes, the motivation of "seeing results" is what makes people continue paying down their credit cards until they are paid in full.

2.) The Debt Avalanche Method

In contrast, the debt avalanche method advocates that you pay off your highest-interest card first.

To illustrate let's say you have the following credit cards:

  • Card A with a $270 balance
  • Card B with a $700 balance
  • Card C with a $1,500 balance
  • Card D with a $10,000 balance

You would want to start by throwing as much money at card C because it has the highest interest rate (i.e., 15% APR).

Once that card is paid off, you would then take that payment and put it towards card D.

That way, you are reducing the total amount of interest you would have to pay by starting with the highest-interest card first.

The key to this method is that it makes the most fiscal sense because you are paying less interest in the long run.

Both these methods have their merits so I recommend trying both and seeing which one works best for you!

Which Method Should You Choose?

It really depends on your situation. However, most people are better off using the debt snowball method simply because it is more motivating.

Also, it can be easier to stick with if you know that you are seeing results right away (which is not always the case with the debt avalanche method).

Regardless of which method you use, just remember that they both allow you to pay off your credit cards faster due to eating up less interest!

Just remember that paying down your debt is a marathon and not a sprint.

There will be times where progress seems nonexistent but as long as you keep going, you will get there!

Regardless of which method you choose, it is important to be diligent—especially when working with credit card debt.

I hope this helps someone out there get on top of their finances!

If you don't know where to start I would recommend contacting a financial advisor who can help you not only pay off your debts but also create an effective household budget.

About the author 

Jenna Lofton, the founder of StockHitter.com, has been actively trading stocks and investing for nearly 11 years.

She holds an MBA in Finance, and another in Business Administration, and lives in Staten Island, NY.

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