3 Key Strategies For How To Pay Off Your Credit Card Debt Faster

Imagine not having that crushing debt hanging over your head.

Imagine not having that crushing debt hanging over your head.

So you’ve started saving some money and also switched to debit to pay for your expenses? Great! Now, let’s talk strategy.

There are three strategies I often recommend to clients who are looking to pay down their debt: the snowball method, balance transfer, or personal loan.

But how will you know which is right for you? Well, here’s how they work and when to use them:

Debt snowball

The debt snowball, or the snowball method, is one of my favorite debt pay-down strategies. If you have multiple credit cards with balances and you’re paying a little extra on each of them, but feel like nothing is changing, the debt snowball is for you.

Details on how it works are here, but essentially, instead of spreading all your extra payments (as in anything above your minimum payments) across all your debt, you will focus on paying down one balance at a time, starting with the lowest balance.

Why does this work? The interest is calculated based on the credit card balances. When you pay down a large portion of the balance on one card, you’re paying that much less in interest and that much more towards the actual amount you owe.

With the next two strategies, you'll be opening new lines of credit, which means your credit score will be checked and you’ll see it go down. You want to have a credit score of about 650 or higher to use these tools. For either of these next two strategies to work, it is even more important that you’ve switched to paying to debit for everything.

I have seen many times where someone does a balance transfer or personal loan, only to run up the balance on their old cards again.

Balance transfer

There are a lot of credit card companies who would love it if your credit card balance was with them, so they’ve created a lot of incentives to get you to switch over. Usually, the incentives include 0% interest on your balance for a certain number of months.

If you have a solid credit score, you can apply for a card with a 0 percent interest balance transfer. Make sure the offer is for at least 12 months and also be aware of what the balance transfer fee is (usually 3 percent of the balance or $5, whichever is higher).

If you transfer a $10,000 balance with 15 percent APR, you will save $1,500 in interest for 1 year and pay $300 in balance transfer fees.

The main downside of a balance transfer is the 0 percent interest is for a limited time, so the interest rates will shoot right back up once that trial period is over. This is a great strategy to use if you plan to pay down your debt within the 0 percent interest time frame.

Personal loan

You used to only be able to mostly get personal loans from banks or brick and mortar institutions, but in recent years, many online start ups have started offering personal loans to help relieve credit card debt.

There are two benefits to a personal loan:

  1. You transfer debt from revolving credit (a credit card) to an installment loan (the personal loan). A significant part of your credit score is keeping your revolving credit balances below 30 percent of your limit and switching to a personal loan will do just that.

  2. You fix the payment for a certain number of years with usually a much lower interest rate. The best personal loans right now are offering about 5 to 6 percent interest loans (with the right credit score).

When you apply for a personal loan and you’re trying to decide on the right payment plan, start with a similar amount to what your monthly minimum payments have been. If your total minimum payments are $400, find a monthly payment that is close to it.

The main downside with a personal loan is that you lose the flexibility of the payment amounts that you have with credit cards. As you pay the balance down, your minimum payment doesn’t go down with it.

If you have steady income, this is a great solution for lowering your interest and only having one loan payment. Hope that helps!

Girlboss' resident finance expert, Pamela Capalad is accepting your burning money (not literally please) questions in "Extra Credit," our financial advice column. Submit your questions to see them answered on this very site in the coming days.

Words: Pamela Capalad
Photos: Daria Kobayashi Ritch