With Credit Cards Paid Off, Consumers Look for Next Options
Consumers Paid Down Record Credit Card Debt During the Pandemic
Thanks to student loan and mortgage forbearance plus pandemic stimulus checks, consumers were able to pay down $82.9 billion in credit card debt last year. Another $49 billion came off the nation’s credit card bills in the first quarter of 2021. This marked the second-largest quarter-over-quarter decline in credit card debt since 1999.
Now many individuals are left wondering what debt to pay down next.
Different Debt Payoff Methods
The words “snowball” and “avalanche” might sound like an alarming day on the mountain, but they also apply to two popular debt payoff methods.
The Snowball Method entails paying off debts in order from smallest to largest–regardless of their respective interest rates. Those using this method continue to make at least the minimum payment on all of the debt owed, but pay as much extra as possible toward the smallest debt on the list. Once the smallest debt is paid off, you move the focus to the next smallest, and so forth.
The Avalanche Method entails paying off debts in order from highest interest rate to lowest interest rate—regardless of the amount owed on each bill. Those using this method continue to make at least the minimum payment on all the debt owed, but pay as much extra as possible toward the debt with the highest interest rate. Once that debt is paid off, you move the focus to the debt with the next highest, and so forth.
High-interest rate debt is not only expensive, it can also take forever to pay off. But just because your loan or credit card came with a high rate doesn’t necessarily mean you’re stuck with it forever. Consolidating debts with a personal loan at a lower interest rate or with a shorter term offers another option to pay those debts off in less time than expected.
Depending on the lender, some personal loans come with origination fees, late fees, or prepayment penalties, which could potentially drive up the cost of your loan. When shopping around for debt payoff solutions, keep an eye out for any fees that a lender could apply to a personal loan.
Debt reduction strategies are as unique as the individuals paying them. The good news is there are many options to choose from.
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