What's the best way to pay off credit card debt?

While everyone’s circumstances are different, many people looking to reduce credit card debt can begin with one of two approaches: a snowball debt reduction plan or an avalanche debt reduction plan. Here’s what you need to know to make the right choice for you.

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$16,467
The average amount owed by American households with credit card debt in 2016.

Sources: Federal Reserve, U.S. Census Bureau

SNOWBALL APPROACH
Start with the smallest balance first, pay it off, and work your way up to the largest balance.

PRO
Extinguishing one small debt can help you build momentum toward larger debts and give you a psychological lift.

CON
Focusing on the size of the balance rather than the interest rate could mean paying more in interest than the avalanche approach.

AVALANCHE APPROACH
Start with the highest-interest debt, then work your way down to lower-interest debt.

PRO
Prioritizing high-interest debt minimizes the overall amount of money you pay in interest.

CON
The highest-interest debt may not be the smallest debt, so you may not get the psychological boost of retiring your smallest debt right away.

Key considerations

Interest rates Paying down high-interest debt first minimizes the overall amount of money you pay in interest.

Minimum payment Don’t fall behind on your other card payments and go into default.

Credit utilization Typically lenders prefer you use less than 30% of your available credit.

Snowball or avalanche?
It’s up to you to decide what the best approach is for you, but either way, paying down debt is a major step toward improving your financial health and your credit.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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