By Kaleb Strawn, Brighton Jones, and Obioha Okereke, College Money Habits

To maintain good credit standing, it’s important to pay your credit card bills on time. Try to pay them in full or at least the minimum amount due. Late or missing payments can lower your credit score. 

If you find yourself unable to pay off your full credit card balance each month and begin to accumulate credit card debt, there are a number of strategies to help get your balances to zero.  The most important thing is to find a solution that works best for you and that will keep you motivated to reduce your debt.

Below are two popular strategies to help you pay off your debt:

1. Snowball Method 

The snowball method to paying off debt consists of identifying your lowest outstanding balance and focusing on that repayment first, regardless of the applicable interest rate. The idea behind this method is to build momentum, like a snowball, and generate motivation as you begin to see account balances fall to zero.  

For example, if you have two loans:

Loan 1: $25,000 in student loans

Loan 2: $3,000 in outstanding credit card debt

Then you would focus on paying off loan 2 toward your  credit card debt first, since it is the lower of two balances. 

2. Avalanche Method 

This method consists of targeting your debt that has the highest applicable interest rate and paying down this balance first. 

Financially, the avalanche method can make the most sense over the long term since you will pay less in interest. Emotionally, however, this method may prove dubious as the account that is contributing the highest interest typically also has the highest balance. Because of this, it may take some time before you feel real progress. 

Now using the same example from above, let’s say that your student loan has an interest rate of 5% and your credit card has an interest rate of 3%.

Loan 1: $25,000 in student loans, 5% interest rate

Loan 2: $3,000 in outstanding credit card debt, 3% interest rate

Using the avalanche method, you would focus on paying off your student loan debt first because it has a higher interest rate.

Investopedia notes, “The debt avalanche method is the best strategy to save money and time, but it does have its downsides. Mainly, it requires discipline — to put all your extra allocated money into paying off a particular debt, and not just the minimum. The debt avalanche will not work as effectively if you lose motivation and skip a month or two of strategic repayments.”

While credit cards can sometimes be intimidating, confusing and lead you to accumulate debt, they can provide enormous benefits, when used appropriately, setting you up for financial success. 

 

 

If you have any questions regarding these personal finance resources and/or general questions about managing your personal finances, contact Obioha Okereke from College Money Habits at learn@collegemoneyhabits.com

Ready to test your credit knowledge?

Related Articles:

5 Behaviors To Improve Your Credit Score

A basic building block to financial health is having a strong credit score. Learn important practices to boost your credit score.

How Is Credit Score Calculated?

Your credit score is the key to accessing credit. Understand the five factors that go into calculating your credit score so you can take control of it.

Things to Know Before Applying for a Credit Card

While a credit card allows you to borrow money with the promise to pay it back, it requires prudent management. Learn key considerations in applying for one.

Blog | My Biggest Credit Mistake

College Money Habits Founder Obioha Okereke shares how he learned about credit utilization the hard way and what he’s done to increase his credit score.

How can we help you?

You can check the status of your grant by creating an account through our online portal. We can also send you email notifications when the status of your application and/or grant changes.

 

To create an account and/or sign up for email notifications, visit https://www.tfaforms.com/4950959

 

Visit our online support page for answers to common questions about: 

 

 

For information about why the organization changed its name to Byrd Barr Place, please check out our story. 

 

If you can't find an answer to your question or need support in Amharic, Spanish, Thai, Tigrinya, or Vietnamese, please reach out via phone at 206-812-4940. Visit our Contact Us page for additional details.