Pick a card, any card—that’s how you feel whenever you get a paycheck and know you need to devote a hefty portion of it to whittling down your credit card debt.
But there are three strategies to consider: the “snowball,” in which you pay off smaller credit card debts first, the “landslide,” in which you pay off the card most recently opened first, and the “avalanche,” in which you start with the card that has the highest interest rate and go from there.
We checked in with our friends at the financial planning firm Stash Wealth to get the lowdown on each method so you can choose the one that’ll work best for you.
Pros of the Snowball Approach
It’s all about momentum. Since the idea is to focus the bulk of your payments on the smallest debt first (for example, the $700 you racked up on your J.Crew card), you’ll feel like you’re winning with each credit card you pay off.
You can cut the number of bills faster. Think of it this way: Once you pay off that J.Crew card, it’s out of your life for good. And one less minimum monthly payment means you’re one step closer to financial freedom.
You’re more likely to stay disciplined. It’s a confidence thing. When you tackle the easier cards first, you’ll feel like you’re making progress, which helps pump you up to face larger debts.
Pros of the Landslide Method
The end goal is a better credit rating. Fun fact about your credit score: More weight is actually given to payment activity on newer accounts rather than older ones. That means that paying off the card most recently opened is the quickest way to boost your credit score.
It’s also designed to forgive past mistakes. The reason new debt takes priority is because it aims to predict future financial behavior. For example, yes, you’ve accrued debt in the past, but look at this new card and how quickly you paid it off! You must be changing your ways.
This method is smart if you’ve got your eyes on a different prize. Maybe that’s home ownership. Or applying for a new job. Or simply trying to get a grip on your credit. The Landslide puts the focus on rebuilding your credit rating, then moving forward from there.
Pros of the Avalanche Method
It’s more cost effective in the long run. High-interest loans are the worst. If you tier your debt obligations from highest (your 21.99 percent APR Visa card, for example) to lowest (your 3 percent student loan), you’ll ultimately come out ahead dollar-wise.
You’ll get out of debt faster. It’s simple: Cards with higher interest rates accrue debt more quickly than cards with lower ones. The sooner you get rid of high-interest balances, the faster you’ll start making a dent.
You’ll have more money in your pocket. Just keep your eyes on the prize.
Which Is the Best Method For You?
The Avalanche Method is best if saving money is your top priority. But the Landslide is the key if you’ve got your sights set on the bigger picture (like home ownership) where you need to improve your overall financial history. Finally, if small victories are the only way you’ll stay motivated, by all means go Snowball. Whichever you choose, a commitment to being debt-free is majorly commendable.