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Financial planners love the debt snowball and debt avalanche methods to get out of credit-card debt.
- Business Insider asked financial planners the best way to get out of credit-card debt.
- They all recommended either the debt snowball method, which prioritizes paying off the smallest balance first, or the debt avalanche method, which prioritizes paying off the highest-interest rate balance first.
- The debt avalanche method is heralded as the more cost-effective strategy, but the debt snowball method can help build momentum.
- To be effective, both strategies require making at least the minimum payment on all balances.
- Missing credit-card payments or keeping a balance of more than 30% of your credit limit can wreak havoc on your credit score.
Nearly half of American households are in credit-card debt, carrying an average of $6,929, according to a NerdWallet analysis.
Any amount of debt can feel suffocating and even insurmountable given that the average annual percentage rate (APR) is creeping toward 18%, but there are ways to get out from under it.
Business Insider asked financial planners their favorite way to get out of credit-card debt, and they all recommended two equally effective strategies: the debt snowball and the debt avalanche.
"I would start with writing it all out," Nick Vail, a CFP at Integrity Wealth Advisors, told Business Insider. "This can be eye opening in and of itself." First, write down exactly how much you owe and the interest rate on each account. Then figure out how much money you can afford to put toward debt payments every month.
In any case, you'll continue to pay at least the minimum payment on all debt balances. With the debt snowball method, you'll put any extra money toward your smallest debt until that's paid off, and then you'll tackle the next highest balance. With the debt avalanche, you'll prioritize the highest-interest rate debt first, and so on.
For either strategy to be effective, you must continue making at least the minimum payment on all balances. Making late payments or no payments can be damaging to your credit score, as can keeping total balances that take up more than 30% of your credit limit - known formally as your credit utilization rate.
"The avalanche method is typically the most efficient mathematically, but the snowball method might give you the most satisfaction to keep you motivated," said Luis Rosa, a CFP who founded the financial-planning firm Build a Better Financial Future.
"I'm usually an optimizer, but for those with balances on multiple cards, I love Dave Ramsey's snowball method," said Andrew Westlin, a CFP at Betterment. "Getting that first balance paid off builds confidence and momentum, and these small wins are crucial in long-term success," he said.
Most importantly, find a strategy you can commit to, said Bobbi Rebell, CFP. "It's like dieting - there are popular methods that are great, but the best one is the one that works for each person."
- Read more about strategies for getting out of debt:
- The most convenient tools to help pay off credit card debt can ultimately save thousands of dollars
- I paid off $40,000 of student loans in 2 years thanks to a math-based strategy I'd recommend to just about anyone
- The best financial decision I ever made for my family gave us a gift more precious than anything we could buy
- I decided to pay off my mortgage by age 40, and I'm convinced it's one of the best things I've ever done
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