Five Smart Strategies to Pay Off Credit Card Debt

Get your balance down to zero, as advised by our financial expert.

Debt is one of those unseen nuisances that quietly loom over the heads of many Americans. In fact, the average household debt hit a record $14.6 trillion in the spring of 2021, according to statistics garnered by the Federal Reserve; that calculates to an average $90,460 per person, which includes all types of consumer debt from credit cards, personal loans, mortgages, and student debt. And while we all know that having a good credit score is the key to good financial standing, how can you get back on the right track when you're in debt?

paying with credit card in cafe
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There are two main ways to minimize debt: First, you can pay off each debt individually; your second option is to consolidate all of your debts into a single regular payment. For more advice and strategies to try, we consulted Ann Dowd, CFP, vice president of Fidelity.

Follow the debt avalanche method.

The first approach to paying down your debt by interest rate also known as the debt avalanche method. "First, start tackling your debt by focusing on the debt with the highest interest rate while continuing to make the minimum payments on your other forms of debt," explains Dowd. "Once you've paid off the highest interest debt, start paying as much as possible to the next highest interest rate debt." In theory, this method will help you save the most on interest charges but if your account with the highest interest rate also has a significant balance, it will take time more to pay it off entirely.

Opt for the debt snowball method.

Alternatively, you can try the debt snowball method. To start, list your account balances in order from lowest to highest then focus on paying off the one with the lowest balance first. When the balance on that account is zero, put the money you were using to pay it off toward the account with the next lowest balance and so on. The idea is that you will eliminate debt spread out across several accounts faster, build momentum, and stay motivated. However, if your larger debt balance has the highest interest rate, you may pay more in interest over time.

Consolidate your debts.

Another approach to paying down debt is to combine multiple debts into one, ideally at a lower interest rate, thereby making your monthly payment more manageable or the payoff period shorter. There are a few ways to consolidate debt including a balance transfer of cards and personal loans. Then, you should aim to pay more than the minimum. Dowd points to the fact that most credit card minimum payments are low, meaning you'll end up paying more interest over time as well as actually paying off the complete balance over a longer period of time. To avoid that from happening, pay more than the minimum. "To help understand how much disposable income you have, you need to have a firm understanding of your overall financial picture," says Dowd. "Take advantage of free resources like Fidelity's Budget Checkup tool, which helps track monthly spending and income."

Ask about a debt management plan.

If you're facing a mountain of credit card debt and not making progress, a non-profit credit counseling agency can set up a debt management plan to cut your interest rate and put you on a repayment plan. They can also discuss the necessity of a debt settlement agreement or declaring bankruptcy. Either way—"knowing how much debt you have and how much it will cost you to repay it over time may also help to stop charging," says Dowd. "Make a list of your total debts and the interest rate and keep it in an easy-access place to give yourself a daily reminder."

Tap into your other financial resources.

This may seem like a no-brainer, but making smarter financial choices can prevent accumulating debt in the first place. Whether you build your savings or start an emergency fund, it's important that you don't accumulate more debt as your trying to pay down your existing debt. And that way, you can tap into your savings instead of swiping a credit card when you are confronted with an unexpected expense.

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