Anyone who’s carried credit card debt knows that it can weigh heavily on your mind. Although it would be ideal if we could all avoid it, the reality is sometimes we have no other choice. Before we know it, we’re in too deep and frantically wondering how to pay off our credit card balances.
How to pay off credit card debt: 5 ways to bury your balances
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![A headshot of Rachel Cribby who is a contributing author at WealthRocket]()
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The good news is that no matter how daunting it may seem, you can pay off your credit card debt. In fact, not only is it possible, but there are multiple ways to go about doing it, depending on your situation.
In this article, we will go over the top five best opportunities out there for the anxiously indebted.
5 strategies to pay off your credit card debt
Here’s the thing: like many financially adjacent issues, the topic of credit cards can be quite personal to the individual. For some, it may not be easy to even think about. Others may find themselves obsessing day and night over ways to become debt-free.
But the reality is: it’s in your best interest to pay back any credit card debts as soon as possible. When you do so, you improve your credit utilization ratio, which frees up the amount of available credit you have in comparison to the amount you’re using. And this can help you achieve a higher credit score.
No matter where you fall on the spectrum, there is a solution that will work for you. Here are a few solutions that can help you get rid of your credit card debt.
Neo Secured Credit
Rewards
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- 0.5% Earn 0.5% guaranteed top-up cash back, up to $50.
- Welcome Offer Earn up to 15% cash back rewards on your first purchase at select partners Terms and conditions apply.
- Annual Rewards $155 Learn how we calculate this.
- Annual Fee $0
- Minimum Income Required None
Pros
- Average of 5% cash back, which is a rarity for secured credit cards
- No annual or overdraft fees
- Robust perks program
- Low security deposit requirement ($50)
Cons
- Rewards only available at Neo partners
- Only reports to one of the two credit reporting agencies
The Neo Secured Credit card is best for those who want to improve their credit, but also want to enjoy cash back and other rewards. While most secured credit cards require a hefty security deposit, the Neo Secured card requires just $50. Applicants also won’t get a hard inquiry on their credit report when applying — another plus.
1. The “avalanche” method
In the natural world, avalanches are something to be feared. When it comes to paying off credit card debt, however, they are something to be revered.
For the uninitiated, the “Avalanche Method” is a debt-repayment strategy that targets debt, including credit card debt, with the highest interest rate first. Say you owe money on two separate credit cards. The first has an interest rate of 20%. The second has an interest rate of 18%. The Avalanche Method dictates that you pay off the 20% card first, even if the total balance owed is less than the card with an interest rate of 18%.
It may seem counterintuitive to pay off a smaller balance than a bigger one, but creating a debt avalanche will actually save you money in the long run by targeting the cards with a higher interest rate first. That said, make sure you’re making your minimum payment on all the credit cards you carry debt on each month. Making your minimum payments each month can help you maintain a good credit score
2. A credit card balance transfer
If you feel your interest rate is too high and would like to pay off your credit card debt faster, it might be worthwhile to see whether you can transfer your credit card balance to another card. This action is known as a credit card balance transfer and there are many balance transfer credit cards designed for this problem.
A credit card balance transfer allows you to pay off your credit card debt with another credit card with a lower interest rate.
Often, banks or credit unions will offer promotional credit cards that offer 0% interest for the first 12 months. If you can qualify for one of these cards, you can use it to pay off your high-interest credit card or cards.
While it’s tempting to get out of the grasp of high-interest debt, there are obstacles associated with this method. For example, you will have to qualify for a new credit card, depending on your credit score.
Here’s a quick tip: if you do end up transferring your balance to a new credit card, don’t close the previous card. Doing so could lower your credit utilization ratio and negatively affect your credit score.
CIBC Select Visa Card
- Welcome Offer 0% interest balance transfer with a 1% transfer fee for first 10 months Terms and conditions apply.
- Annual rewards $0 Learn how we calculate this.
- Annual Fee $29 (first year waived)
- Minimum Income Required $15,000 household
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Pros
- Low monthly interest fee
- Save money on previous debts
- Save at the pump
Cons
- Limited perks and rewards
- Annual fee
- Low monthly interest fee
The CIBC Select Visa is a low-interest credit card designed specifically for lower-income Canadians to help pay down their debt. It also offers the ability to transfer old debt to your new card with a 0% interest rate for 10 months (with a 1% transfer fee). Learn more about the card in the review below.
3. A line of credit
Opening up a line of credit to pay off credit card debt is taking a similar approach to a balance transfer. However, in this case, instead of opening a new credit card, you are opening a line of credit with your bank or credit union.
Borrowers are drawn to lines of credit because they usually have lower interest rates and higher limits. Having a low-interest rate is advantageous in itself, but having a higher limit can also benefit you as your credit utilization ratio is another factor that affects your credit score.
However, a line of credit can be even harder to successfully secure than a balance transfer credit card. Your ability to take out a line of credit will depend on several factors, just like any other personal loan option. These factors can include but are not limited to, your salary, credit score, and whether or not you have a co–signer.
4. The “debt snowball” method
The “Snowball Method” is another type of DIY debt repayment philosophy that attacks your smallest debts first.
Once you’ve eliminated your smallest outstanding debt, you then move on to the larger debts.
There is a psychological element to this approach. Since paying off a credit card can be daunting, getting an account down to zero can be a large confidence boost.
Of course, while you’re focusing on the smallest debts, you’re required to continue to make your other minimum payments.
5. A home equity loan
One last option that some may find helpful in their debt-elimination journey is taking out a home equity loan.
Home equity loans generally carry lower interest rates than the common credit card. Although it may seem precarious to tie your credit card to your home loan, it may be the right option for some borrowers who don’t have strong enough credit to qualify for other forms of debt consolidation.
Of course, this is only an option for people who own a home, but it is still a viable option for repaying debt at a lower interest rate.
Rachel Cribby
Frequently Asked Questions
When you’re a student, any sort of money management can be a challenge, let alone credit card debt. However, students can do their part to maintain financial health by doing their best to maintain a good credit score, to prioritize debt payments, to live on a budget, and to perform a debt consolidation if at all possible. Fortunately, students can also take advantage of various student-tailored perks, including grants, special pricing, and access to free or cost-reduced services.
There’s no “normal” amount of credit card debt, per se, but in 2019, Statistics Canada found the median value for those holding credit card debt by age group:
- Under 35: $2,400
- 35 to 44: $4,000
- 45 to 54: $4,000
- 55 to 64: $3,900
- 65 and over: $2,500
The simple answer to this question is that if the line of credit’s rate is lower than the credit card’s, using a line of credit is certainly an option worth considering. If you qualify for a line of credit at a low-interest rate, it is an option worth exploring. While getting a line of credit to pay off credit cards is a good idea for many people, this will ultimately depend on your personal situation.
