Being in credit card debt is a terrible feeling. I know because I’ve been there. But know what will make you feel instantly better?
Taking action. Really, once you pick a strategy and start making progress, you’ll feel immense relief. Yes, you’ll still be in debt. But once you start seeing that balance go down each month, you’ll get an adrenaline rush that will propel you forward.
And here’s one more thing to keep in mind: Don’t use your credit cards. If you do, you’ll add to your debt. So put away the cards and focus on becoming debt-free.
Smart strategy #1: Get a balance transfer card with a 0% intro APR
If you still have excellent credit, you might qualify for a balance transfer credit card that offers a zero percent introductory APR. Right now, the best cards have intro periods ranging from 12 months to 21 months.
But note that there’s a balance transfer fee of 3% to 5% with most credit cards. So if you end up paying a fee, make sure you add that to the cost of repaying the debt. For instance, if you transfer $5,000 to a card with a 3% transfer fee, you’ll owe an extra $150 (5,000 x .03 = 150) to pay for the fee. So the total amount you owe will be $5,150.
In many cases, you’ll still come out ahead because what you save on interest more than makes up for the fee. But do run the calculations and make sure the card you’re considering is worth the transfer fee.
There are exceptions, such as the Chase Slate credit card, which waives the fee if the transfer is made within 60 days. If you don’t get it done within 60 days, then the fee is a whopping 5%.
But what if your credit score is less than ideal? Don’t fret because you still have options. There are balance transfer cards out there that don’t offer a zero percent APR, but that might have a balance transfer APR that’s better than the one you have now.
You can also accomplish this via a debt consolidation loan.
Smart strategy #2: Get a debt consolidation loan
If your credit isn’t a disaster, you might be able to get a loan with a fixed APR that’s lower than the rates you’re paying on your accounts.
But you also need to be aware of fees, so read the fine print carefully. For example, some lenders charge origination fees (about 1% to 6%).
A debt consolidation loan can actually boost your credit score. When you have high balances on credit cards, your score can drop due to high utilization ratios. A consolidation loan frees up your available credit and that helps lower your ratio. A lower ratio equals a lower score.
Now, if you go out and make purchases using your cards, you’ll end up in a place you don’t want to be. You’d have credit card payments again, plus your monthly loan payment. So going this route takes self-discipline to be successful.
Another positive thing about a debt consolidation loan is that you’d have one monthly payment to make instead of many payments, which simplifies things. And if you pay more than the minimum, you’ll see your balance start to go down.
But if a debt consolidation loan isn’t a good fit for you, then there are other debt-reduction strategies. You can take the old-fashioned route and tackle each debt, one balance at a time.
Smart strategy #3: Start a debt avalanche
If you’re planning to pay off several cards on your own, then the debt avalanche method is one to consider.
Here’s how it works: You make a list of your account balances along with the APRs. Then you place them in order from the account with the highest APR down to the lowest APR.
The balance with the highest APR is conquered first. You pay minimums on all your other accounts and then pay as much as you can on the target debt.
When it’s paid off, you move to the next account, which is the card with the second highest APR.
I like this method because it You pay less interest overall. But if you feel you need a quick start, then the next strategy might be a better fit for you.
Smart strategy #4: Throw a snowball at your debt
Another popular strategy is called the snowball method. Here’s how it works: You list your debts, but now you place them in order from the smallest debt down to the largest debt. The APR isn’t a factor with this method.
Now, with this strategy, you pay more interest expense. But some folks prefer getting a quick win by eliminating the account with the smallest balance. They get a psychological boost from paying off one of their balances quickly.
Which strategy is best?
Honestly, the best method is the one that helps you succeed at paying off your debt. So it’s really a personal decision.
If you get more of an adrenaline rush from saving money, then choose the avalanche method. I like this method because I get a big boost from saving money.
If you need the quick win, choose the snowball method. It’s that simple. Whichever method you choose, try to pay more than the minimum payment on your target debt. Attack your budget and see if you can reduce expenses. Any extra money you can find is applied to your target debt.
Another option is called the “Debt Blizzard,” which is my own concoction and I talk about this in my book, The Debt Escape Plan. I called it a blizzard because I wanted to stick with the snow metaphors.
Here are the basics: You start with the snowball method and target the credit card account with the lowest balance. After you pay off one debt quickly and get a welcome adrenaline boost, you switch to the avalanche method. Now you tackle your remaining credit card balances starting with the highest APR. So the blizzard method gives you the best of both worlds.
When you’re in debt, your main job is to pay it off and take back your financial freedom. If your credit score is low due to high balances, you’ll start to see your score go up as your balances go down. Getting out of debt and rebuilding a healthy score will set you up for a bright financial future.
Read more: 7 easy ways to cut your monthly bills