How to Pay Off Credit Card Debt Fast: Avalanche vs Snowball

If most of your spending now happens with the tap of a card, you are in good company. Cash has disappeared from most wallets, most certainly mine, and borrowing has never been easier.

The numbers show it as well. We don't have clear data in New Zealand, but the average American carries more than $6,000 of credit card debt. The Federal Reserve estimated total US card debt passed $1.1 trillion at the end of 2023, at an average interest rate of about 22%. I would guess it's similar in New Zealand, especially if we throw in buy-now-pay-later schemes.

Credit cards are useful when the balance gets cleared every month. When it doesn't, the interest and fees do the damage.

Why is credit card debt so expensive to carry?

Card interest sits well above what you would pay on a mortgage or a car loan. Scanning New Zealand credit cards on the market, you're looking at rates around the ~20% mark.

Left unpaid, a balance grows through compounding, where interest gets charged on earlier interest. At that kind of rate, a $1,000 balance nearly doubles in three years.

That is why the order you repay your cards in matters, and why the rate you are paying deserves as much attention as the balance.

What is the avalanche method of paying off credit card debt?

The avalanche method means paying off your highest interest rate debt first.

Write every balance on a piece of paper, sorted from the highest rate to the lowest. Also make note of the minimum repayments because these are the first priority each month, and only then put all your extra money toward the card at the top of the list.

Once that one is gone, move to the next. As you work down the list, more of each repayment goes to the balance and less to interest, so the debt shrinks faster the further you get.

What is the snowball method, and is it better than the avalanche?

The snowball method flips the order. You pay off the smallest balance first and work up to the largest, whatever the interest rates are.

The appeal is purely psychological. Getting a card to zero feels like a win, and a few early wins can build the momentum you need to take on the bigger balances.

Many financial advisers prefer the avalanche method because it costs less in interest. But a plan you stick with beats a cheaper plan you abandon in month three. If clearing a small card in full is what keeps you going, the snowball is doing its job.

Can consolidating credit card debt lower your interest rate?

Consolidation means moving your credit card balances onto a single debt at a lower rate, usually a personal loan or a balance transfer card. Banks generally price both below their standard card rates.

ASB in New Zealand is a handy example. Its rewards credit cards charge about 20% to 21% a year on purchases. Its Visa Light card offers 0% on balances transferred from another bank's card for six months, and when I filmed the video its personal loan rate was 13.9%. ASB itself points to debt consolidation as one use for that loan.

Here is what the gap is worth. Take a $6,000 card balance at 20%, repaid over three years. You would hand over a little more than $8,000 in total, about $2,000 of it interest.

Move that balance to the personal loan and keep the repayments the same, and the debt is gone three months sooner with roughly $800 less interest. If you could manage $1,000 a month on the balance transfer card, you would clear it inside the six months and avoid the full $2,000.

The catch is behaviour. Consolidation only works if the freed-up cards aren't used for new spending, and a balance transfer rate reverts to a higher one when the promotional period ends.

How do you tackle a credit card balance that feels too big to start on?

A large balance can be daunting enough that people avoid repaying it at all. Breaking it into chunks helps.

Say you owe $10,000. Stop thinking of it as one $10,000 problem and treat it as ten lots of $1,000. Each one you knock off is a small win you can see.

This doesn't make the debt disappear any quicker on paper. What it does is get you started, and starting is the part most people get stuck on.

How do you find more money to put toward credit card repayments?

Paying debt down faster usually means spending less somewhere else and redirecting the difference. Start by sorting your weekly spending into big buckets like groceries, transport and housing. Your card statements will show you where the money goes.

Look for areas you can trim, and send those savings straight to the card. Every extra dollar of repayment comes off the balance that interest is charged on, which can take months or even years off the timeline.

It can also help to pay with a debit card or cash for a while. Spending money you have already earned makes it harder to overspend.

And if a windfall arrives, such as a raise, a bonus or an inheritance, putting it toward the balance makes a real dent in stubborn debt.

So, what is the fastest way to get rid of credit card debt?

Put the five ideas together and you have a plan. Order your debts, by rate if you want the lowest cost or by size if you need the motivation. Look at whether a lower-rate loan or balance transfer would cut the interest. Break the total into chunks, free up cash, and pay as much as you can manage.

None of it is complicated. The hard part is the first repayment above the minimum, and each one after that gets a little easier.

This article is general information only and isn't personalised financial advice. If you are struggling with debt or weighing up a consolidation loan, talk to a licensed financial adviser or a free budgeting service about your own situation. They can help provide guidance specific to your personal situation.

Frequently Asked Questions

Does a balance transfer clear my debt?

No. It moves the debt to a card with a lower promotional rate for a set period. You still owe the full amount and have to repay it.

What happens when a 0% balance transfer period ends?

Any balance left over starts being charged interest at the card's ongoing rate. The saving depends on how much you repay inside the promotional window.

Should I close a credit card once it is paid off?

That depends on your situation. Some people close the card to remove the temptation, and others keep one for emergencies. A licensed financial adviser can help you weigh it up.