Credit Cards

What Is the Best Way to Pay Down Credit Card Debt? It Depends

Paying off your credit cards may seem like an impossible task, especially if you’re not in the position to get a balance transfer or a low-rate loan. But persistence and time can overcome many debt burdens, as long as you do it in the right way.

To pay down debt, you’ll generally need to step up the amount you repay every month against your cards, loans and more. There are two common methods for paying off credit card debt by employing bigger payments: Start with the smallest balance and work up from there—also known as the snowball method—or tackle the balance with the highest interest rate and work your way down—AKA, the avalanche method.

Both approaches have their advantages, but what matters is your priorities. Do you want to pay less in interest overall, or do you need momentum so your debt repayment plans stay on track? How you answer will help you decide which method is best for you.

Snowball Method

How it works: You start by making the largest payments to the smallest balance first, while paying the minimum on your other balances. After that smallest balance is paid off, you move on to the next smallest. Repeat until all debt is eliminated.

Benefits: By paying the smaller balances first, you create a reward system that encourages you to keep going, says Melissa Brennan, manager of financial planning at Vogel Financial Advisors in Richardson, Texas. Otherwise, she warns, you may find yourself “in a two- to three-year slog against [the] debt with the reward all coming in the last six months,” she says. “Paying off and closing credit cards along the way is a big ego boost.”

Another plus: You’ll likely get a bigger boost to your credit score by eliminating revolving debt quicker and having more zero balances, says credit expert John Ulzheimer.

Cons: You’ll likely end up paying much more in interest, especially if the smallest balances are also the ones with the lowest interest rates. If your highest balances also have high rates, it may take more time to pay off all your balances than if you employed the avalanche method.

Who is this good for? If the real obstacle to paying off debt is your lack self-discipline or motivation, then this method may be best for you. You will get small victories of zero balances sooner, which will convince you to keep going.

Avalanche Method

How it works: Begin by paying off the balance with the highest interest rate first. Pay the minimum on your remaining cards. After you pay off the highest-rate balance, start in on the next highest. Repeat until the balances are paid off.

Pros: “All else being equal, paying off the highest rate balance first will lead to the best financial outcome and the fastest path to pay-off,” says Daniel Mahoney, founder and president of True Square Financial in Atlanta. The financial outcome is that you will save money on interest. The bigger the disparity among the interest rates, the larger the savings can be.

Cons: It can take a long time—as in years—before your first balance is paid off, especially if the balance with the highest rate is also the largest in dollar terms. Such a long time before a literal and psychological payoff could sour some borrowers on debt elimination.

Who is this good for? If you ended up in debt because of an unforeseen life event, like job loss, divorce or medical emergency, but your finances were otherwise in good shape, you may have the financial discipline and wherewithal to use the avalanche method.

Best of both worlds

It may be better to use a combination of both methods when you first start out. For instance, consider taking out a few small balances first to build momentum and then switch to high-rate cards next after notching some successes, recommends Susan Mitcheltree, a principal at Berman McAleer, a financial planning firm in Maryland.

“You may have better staying power to stick with your debt reduction plan in this scenario because you've already seen it work,” she says.

ln his own financial modeling, ValuePenguin’s credit card analyst, Rob Harrow, finds the avalanche method works best to limit interest paid in most scenarios. Still, there is no catch-all rule for every case, Harrow says. If you want to minimize interest charges, he recommends using online payoff calculators for different scenarios. “You may need to bust out a pen and paper, and the calculation may take some time to complete,” he says. “But spending 30 minutes to an hour on this could save you hundreds of dollars in the long run.”

Janna Herron

Janna is a Senior Writer at ValuePenguin covering banking, credit cards and credit scores. She has spent more than a decade writing and reporting on personal finance, real estate and business, and has received three journalism awards for her work.