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Practical Ways to Consolidate & Conquer Credit Card Debt
February 14, 2022
By Chad Carpenter
Credit card debt can be one of the most challenging and frustrating aspects of a person's financial life. Trying to pay off a large amount of credit card debt can put a significant strain on your monthly budget, especially if you're living paycheck to paycheck.
On the other hand, a high debt-to-income ratio (DTI) can make it very difficult, if not impossible, to qualify for a big life purchase, like a new car or a house.
What steps can you take to consolidate, reduce, and ultimately eliminate your credit card debt? You may be surprised at the options that are open to you. Let's discuss four pathways to managing your credit card debt and getting your finances back on track.
Debt Avalanche Method
The debt avalanche method is a popular strategy for managing debt. It involves making a list of all your credit card debts and then systematically paying off those debts in the order of their interest rate - from highest to lowest.
For example, let's say you have three outstanding credit card debts to pay off:
- Credit card A, with an APR of 14.65%
- Credit card B, with an APR of 16.28%
- Credit card C, with an APR of 21.99%
With the debt avalanche method, you would pay off Debt C first because it has the highest interest rate. Then you would move on to payoff Debt B, and finally, pay off Debt A.
Of course, the benefit of managing your debt this way is that you'll ultimately pay less on interest than you would with another debt consolidation strategy. You can also use the debt avalanche method to pay off other debts, such as student or car loans, once your credit cards are under control.
The big disadvantage of the debt avalanche method is that it takes time before you start seeing significant results. That can be discouraging over time, and if you need the occasional morale boost in your fight against debt, the following method may be a better option for you.
Debt Snowball Method
The debt snowball method takes the opposite approach to the avalanche strategy. It encourages you to focus on paying off your smallest debts first, instead of the ones with the highest interest rates.
For example, imagine that the same credit cards mentioned above had these amounts of debt attached to them:
- Credit card A: $2,400
- Credit card B: $7,500
- Credit card C: $3,600
With the snowball method, you would focus on paying off credit card A first, then C, then B, even though credit card C may have the highest interest rate.
The primary benefit of the snowball method is psychological. Since you're paying off your smallest debts first, you get to experience positive results more quickly and more frequently than you would with the avalanche approach.
Successfully paying off one debt motivates you to persevere in paying off the other ones. Again, this applies to all forms of debt, not just credit cards.
Of course, the big drawback to the snowball method is that you may ultimately pay more in interest. If you have one outstanding credit card balance with a sky-high APR, that could mean spending hundreds, if not thousands of dollars more in debt payments compared to the avalanche method.
Credit Card Balance Transfers
Another popular option for lowering your monthly payments and paying off your credit card debts faster is making a credit card balance transfer. Just as the name implies, this involves transferring all or part of your balance on a high-interest credit card to another card with a lower APR.
Once that happens, a larger percentage of your payments will go toward paying off the principal of your debt rather than the interest. This means that you'll be able to pay off your debt quicker. Another potential benefit is the reduction of the number of payments you make each month. For example, if you're transferring three credit card balances to a single card, then you'll have fewer bills to track and pay each month.
You'll need to apply for a credit card balance transfer with the issuer of the card that has the lowest APR. If approved, your balance transfer may take a week or two to be processed. Keep in mind that there are often fees associated with a balance transfer, so you'll need to make sure the upfront cost will be worth it in the long run.
Also, any missed payment on your new credit card may cause you to forfeit its introductory lower APR which could negate the benefits you received when transferring your balances ― so make sure you pay on time!
Debt Consolidation Loan
Finally, a debt consolidation loan may be the best option for you to pay off your credit card debts more quickly and at a lower cost. The basic idea behind a debt consolidation loan is that you take out a single personal loan, use the money to pay off all of your credit card debts, and then are left with only one payment to make each month.
Debt consolidation loans can offer several key benefits, including:
- Less complicated finances - you don't have to keep track of several payments each month
- Lower fixed interest rates
- A more reasonable payment schedule
Of course, you should only consider debt consolidation loans from a reputable institution, whether that's a bank, a federal credit union, or a peer-to-peer (P2P) marketplace lender.
You'll also need to calculate whether the debt consolidation loan's interest rate is low enough to save you money in the long run. This free calculator can help in that regard. In many cases, people dealing with a large amount of debt find that a consolidation loan is just what they need to get their finances back on track and breathe a little easier.
Of the four debt management methods discussed above, the best one for you depends on your unique needs, goals, and circumstances. Each strategy has pros and cons. However, with some planning and effort, you can regain control of your finances using one of these methods. As a result, you'll experience less stress, a lower level of frustration, and greater peace of mind.
Credit card debts can indeed be challenging to deal with, but they're not impossible to overcome. Begin implementing one of these methods today, and you could enjoy a more secure financial situation in the future.
Chad Carpenter hails from Dallas, Texas, and lived in Denver, Colorado, for 15 years before landing in Houston. Chad has over 20 years of marketing and SEO experience, including several years in the agency world. When he’s not clacking away on his keyboard optimizing Wellby's digital presence, digging into data, or immersed in AI, Chad enjoys good food, good friends, and good movies (just don’t expect him to watch any in interactive 4D). Chad has two cats, one that loves him and one who is aloof.
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