What’s the best way to pay off credit card debt? Psst! The Debt Lasso Method
You’ve heard about the Debt Avalanche or Debt Snowball methods for paying off credit card debt. But what if there’s a better method? There is, and it’s called the Debt Lasso Method. We’ll prove it!
Debt Free Guys has partnered with CardRatings for our coverage of credit card products. Debt Free Guys and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone and have not been reviewed, endorsed or approved by any of these entities.
What are the three primary credit card pay off methods?
Debt Snowball Method
The Debt Snowball method encourages you, while making minimum monthly payments to your cards, to add any extra money to pay off the card with the smallest balance first, then move to the next smallest balance. When a card is paid off, roll the payment amount from that card payment up to the next smallest balance. As you do so, your payment amount to the smallest balance card will grow.
Debt Avalanche Method
The Debt Avalanche method encourages you while making minimum monthly payments to your cards, to add any extra money to pay off the card with the highest interest rate first. Once this card is paid off, move that payment amount to the card with the next highest interest rate.
The Debt Lasso Method
The Debt Lasso method may at first appear to be just refinancing your credit cards, it is not. The Debt Lasso method encourages you while making minimum monthly payments to your cards to, while making these payments, refinance your credit cards to lower (hopefully zero interest) credit cards or personal loans. Payments should then be automated to pay a set amount based on the initial minimum monthly payment for each card while adding any additional amount to the card with the highest interest rate. (Use this calculator to help you).
How to pay off credit card debt using the Debt Snowball Method
What’s the Debt Snowball Method?
The Debt Snowball Method, popularized by Dave Ramsey, a radio personality known for his love of the debt snowball and belief in debt-free living. He suggests paying off your credit card debt with the smallest balances first while making minimum payments on your other credit card debts. Once your smallest balance card is paid off, proceed to the second smallest debt and so forth until all your credit cards are paid off.
The Debt Snowball Method will give you immediate, psychological wins, even though it takes longer to pay off credit card debt and cost more than most other methods.
The Debt Snowball Method step-by-step
Here are the steps for the Debt Snowball Method:
- List all your credit card balances on a spreadsheet, including their current balances and minimum payment information (use the Debt Snowball Tab on this calculator for this).
- Sort this list by current balance.
- Total the column with the minimum payment information.
- Determine an amount larger than the minimum payment amount you’re willing to commit to paying every month – Every. Single. Month.
1. Subtract the total minimum payment from the total from step #4. This is your bonus payment amount each month (done for you on Debt Snowball Tab on this calculator).
- Pay the minimum payment amount for all of your cards except the card with the smallest balance.
- Add and pay the bonus payment amount from step #5 to the minimum payment amount for your card with the smallest balance.
- Repeat steps 1-7 every month until your card with the smallest balance is paid off. Every. Single. Month.
- Start the process all over again using your credit cards that still have balances, including the growing bonus amount to your card with the smallest balance. With each credit card paid off, this bonus amount should grow, allowing you to make bigger payments to each remaining card.
Why the Debt Snowball Method isn’t the best credit card pay off method
The Debt Snowball Method has its risks.
The first risk is it’ll cost you more than any method because you’ll likely carry larger balances on your credit cards with higher interest rates longer. Plus, it’s the slowest method for paying off your credit cards because you’re focusing on the smallest debt rather than the most expensive debt.
Additionally, because this method takes the longest, you’ll run the risk of losing your initial motivation – quick wins only last so long.
Watch us give an overview of the Debt Lasso Method to CNBC:
How to pay off credit card debt using the Debt Avalanche Method
What’s the Debt Avalanche Method?
The Debt Avalanche Method says to pay off your credit card debt the highest interest rate first while making minimum payments on your other credit card debts. When your highest interest rate credit card is paid off proceed to the next highest interest rate credit card and continue until all your credit card debt is paid off.
Focusing first on your credit card debt that costs the most makes sense. In theory, prioritizing the costliest debt first would save your money on interest payments and cut time compared to the Snowball method.
Yet, The Debt Avalanche Method lacks the inspiration of the Debt Snowball Method and takes longer and costs more than the Debt Lasso Method.
The Debt Avalanche Method step-by-step
Here are these steps for the Debt Avalanche Method:
- 1. List all your credit cards on a spreadsheet, including their current balances, minimum payment information and current interest rate or APR% from your monthly credit card statements (use the Debt Avalanche Tab on this calculator for this).
- Sort the list based on current interest rate or APR%.
- Total the column with the minimum payment information.
- Determine an amount larger than the minimum payment amount that you’re willing to commit to paying every month – Every. Single. Month.
- Subtract the total minimum payment from the total from step #4. This is your bonus payment amount each month (done for you on Debt Avalanche Tab on this calculator).
- Pay the minimum payment amount for all of your cards, except the card with the highest interest rate.
- Add and pay the bonus payment amount from step #5 to the minimum payment amount for your credit card with the highest interest rate.
- Repeat steps 1-7 every month until your card with the highest interest rate is paid off. Every. Single Month.
- Start the process all over again using the credit cards that still have balances, including the growing bonus amount to your card with the next highest interest rate. With each credit card paid off, this bonus amount should grow, allowing you to make bigger payments to each remaining card.
Why the Debt Avalanche Method isn’t the best credit card pay off method
The Debt Avalanche Method is better than the Debt Snowball for paying off credit card debt because of these two most popular methods for paying off credit card debt, it’s faster and saves more money. The problem with the Debt Avalanche Method is that at first, it feels a lot like watching the tortoise race the hare.
With both the Debt Snowball and the Debt Avalanche methods, there are missed opportunities that the Debt Lasso Method provides.
With the Debt Snowball and the Debt Avalanche methods, payments are made without minimizing the biggest inhibitor to becoming debt-free, your interest credit card interest rate. Plus, making payments on two or more cards and doing the calculations each month can be taxing and risk missing and forgetting payments.
Thus, the reasons the Debt Lasso Method was born.
What’s the best method for paying off credit card debt? It’s the Debt Lasso Method
Simply put, the Debt Lasso Method is the best way to pay off credit cards. Here’s why:
- It’s the fastest way to pay off credit card debt
- It’s the cheapest way to pay off credit card debt
- If done based on the steps outlined below, it’ll improve your credit score
- The payment process can be automated, reducing your need to redo calculations month-to-month like the Debt Snowball and Debt Avalanche require
- It combines the best of both the Debt Snowball and Debt Avalanche methods
How to pay off credit card debt using the Debt Lasso Method
Here are these steps for the Debt Lasso Method:
Note, to get the most value from this method, you must commit to not using these or any of your credit cards anymore.
- Download the Debt Lasso Calculator.
- List all your credit cards on a spreadsheet, including their current balances, minimum payment information and current interest rate or APR% from your monthly credit card statements (use the Beginning Payment Calc Tab on the Debt Lasso Calculator for this).
- Total the column with the minimum payment information.
- Determine an amount larger than the minimum payment amount you’re willing to commit to paying every month – Every. Single. Month. Then, add this total to the Committed Monthly Payment field on the Debt Lasso Calculator.
- Subtract the total minimum payment amount from the total from step #3. This is your bonus payment amount each month (done for you on the Beginning Payment Calc Tab on the Debt Lasso Calculator).
- Add the bonus payment amount from step #4 to the minimum payment amount for your card with the highest interest rate (automatically done for you on the Debt Lasso Calculator).
- Set up auto-pay from your bank for the minimum required payment for each card, plus the bonus payment from step #5 to your card with the highest interest rate.
- Shop and apply for 0%-interest balance transfer credit card and low-interest loan offers.
- Determine which credit card(s) to transfer to the new 0%-interest balance transfer credit cards and loans for which you’re approved (use the Lasso Calculator tab on the Debt Lasso Calculator).
- Transfer your balances to the new credit card(s) or pay them off with the low-interest loan(s).
- If you’re using a 0%-interest balance transfer credit card offer, set a calendar reminder for 2-months prior to the offer end-date to start shopping for a new 0%-interest balance transfer credit card or loan if your balance won’t be paid off prior to the offer ending.
- Repeat steps 1-6 for your new credit cards and/or loans (use the Transfer Payment Calc on the Debt Lasso Calculator).
- Once a balance is paid off or you apply for and receive a new transfer offer, start the process all over again using your credit cards with remaining balances, including adding the new bonus amount to the card with the next highest interest rate. With each balance paid off, this bonus amount should grow, allowing you to make bigger payments to each remaining balance.
In order for any method, especially the Debt Lasso Method to work, you must commit to not reducing your payments each month based on your new, lower required minimum monthly payments. Doing so lets you focus all of your payment on paying off your principal balance rather than your credit card interest.
For help controlling your expenses, the best tool is a budget that works for you. To save yourself the stress of creating a budget and wondering if it even works, get our Budget Buster Bundle here complete with our Dynamic Budget and one-of-a-kind Spending Analysis.
The Odd contradiction about the Debt Lasso Method
Just so you don’t freak when we share the steps, let’s talk about the odd contradiction with the Debt Lasso Method. With the Debt Lasso Method, you’ll be getting more credit, which sounds like a bad idea. But it’ll expedite the pay off process.
And – no – we’re not robbing Peter to pay Paul.
How the Debt Lasso Method works
As mentioned above, one of the goals of the Debt Lasso method is to focus on the number one thing that is preventing you from paying off your debt faster. Your interest rate. Getting the lowest possible, hopefully, 0%, interest rate is going to put your payments to your credit cards to work much faster.
For those with good to great credit scores, getting a balance transfer credit card with a 0% rate is one of the best options. Keep in mind, you may pay a fee of 1-5% for the transfer. This needs to be added into your calculations. For those with less optimal credit scores, consider a low-interest loan from a reputable bank or credit union.
Hear about how the Debt Lasso will help you pay off credit card debt fast:
6 myths about credit and credit cards
1. Close your credit cards when they are paid off vs. never closing your credit cards
The truth is neither of these is 100% correct or incorrect.
When a credit card account is closed, like the Debt Snowball and Debt Avalanche methods typically suggest, the credit limit from that card is removed from your credit utilization (the amount of credit you’re using compared to the amount of credit available to you), which will increase your credit utilization. A high credit utilization (usually over 35-40%) can hurt your credit score, as credit utilization makes up 30% of your FICO credit score. With the Debt Lasso method, you will not only leave your cards open, but you will also open additional lines of credit while paying off your debt, which lowers your credit utilization, which can increase your credit score.
On the other hand, having too many credit cards open can raise concern for lenders because you have access to too much credit. So, be strategic about closing your credit card accounts. Focus on ones you know you’ll never use, such as retail credit cards for stores you no longer shop at or cards you may be tempted to use unwisely. These won’t help you with the Debt Lasso method anyway. The caveat is to always leave open the credit card you’ve had the longest.
Once you’ve paid off your credit cards, it’s best to overtime unwind your access to too much credit by closing accounts slowly. Since you’ve opened new accounts with the Debt Lasso method, you may want to close some of these since they have a shorter credit history, (makes up about 15% of your FICO credit score) but first focus on closing the lower quality cards, such as retail accounts.
2. Credit card debt is a way of life, and everyone has it
According to a CNBC survey, approximately 55% of U.S. adults who have credit cards said they carry balances month-to-month. This means, nearly half of us don’t have credit card debt, and we get by just fine without them.
P.S., All of those folks aren’t rich, either. If you think credit card debt is a way of life, get the free ‘7 Thinking Errors that Prevent Financial Success’ eBook here.
We believe that credit cards are like swimming in the deep end of the personal-finance pool. Once you can swim (pay off your cards monthly) there are some great benefits to having some cards. For example, we think one of the best first steps for folks who are ready to start using rewards cards is to start with a cashback rewards card. Cashback rewards cards can shave between 1-8% off your spending when used wisely. Who doesn’t love saving some change?
Travel rewards cards have driven many folks into the credit card debt nightmare they are currently in. Yet, once you master your finances and are able to use the cards strategically, travel reward cards can help you live a bigger and better life. They allowed us to get free travel to places like Ireland, England, Spain, Australia, New Zealand and all over the United States. This is one of our favorite travel rewards cards because of the awesome international travel benefits.
3. Negative items on your credit report are removed when you pay off your debt
Oh, wouldn’t this be nice?!
It’d be great if once we make amends for past mistakes, they’d – poof! – disappear.
Sadly, this isn’t so. If you’ve had debt discharged, written-off, sent to collections and then paid off those debts, they can stay on your credit file for up to seven years. To see if any of your negative marks have stuck around, order your free credit report from freecreditreport.com.
One of the benefits of using the Debt Lasso method is that your credit file is going to get thicker. Yes, this is a real financial term with credit. A thin file is when you have very few lines of credit. When you open new credit cards in the Debt Lasso process, the number of accounts, as well as the payment history on your file, is going to increase. This additional information can help balance out past mistakes and make them less prominent.
A word of caution; the more information that is getting added to your credit file, the more the opportunity for mistakes. About 5% of credit accounts have mistakes, so make sure you review your info at least annually.
4. Don’t use credit cards to have the best credit score
This isn’t true. If this were the case, we’d all start off with perfect credit scores.
Your credit score is based on a number of factors, and one of those factors is your credit history – how long you’ve had credit and whether you’ve made payments in full and on-time. Without any credit history or with large gaps in your credit history, you’re seen as a credit risk and will, in fact, have a lower credit score.
A better credit score comes from proving that you can use credit wisely, which includes having and using credit cards and paying them off in full and on-time every month.
As mentioned in numbers one and three, having less on your credit history can hurt you. With the Debt Lasso method, you increase the history and makeup of your credit information. Both of these can help build and improve your credit score.
5. A low credit score means you can’t get credit
There will always be someone willing to lend you money, it’ll just cost you.
A low credit score means you’re a credit risk. The more risk you are, the more lenders will charge you in interest to borrow from them. They may also limit the amount of credit to which you have access.
Fortunately, you can always prove them wrong and improve your credit score by regularly paying off what you borrow, which is exactly the point of the Debt Lasso method. You may not qualify for the best rate right away, but as you get access to more credit and show you can pay your balances off, you will prove them wrong. Within a few months to a year, your credit score will improve, especially if you pay off the balances in full each month.
For help improving your credit score, sign up for this free Build or Improve Your Credit Score Powered by Experian Boost tool here.
6. Having multiple credit cards is bad for your credit score
Credit cards aren’t a monogamous relationship. So, spread the love around.
This myth is rooted in the fact that many individuals who’ve had multiple cards weren’t good at paying them off, the real credit score crusher.
Don’t be a credit card hussy, but more than one credit card is actually a signal to lenders that you know how to use multiple credit lines – as long as you’re paying them off regularly and not missing payments. With our Debt Lasso method, we opened up more accounts, which helped our scores go up. In addition, there are folks in our Credit Card Pay Off Plan who have over 10 credit cards open while paying off their cards, which is helping their credit scores rather than hurting them.
Balance transfer credit cards — what are they and how do you find one?
What’s a balance transfer?
A credit card balance transfer is kinda like switching teams mid-game. It’s when you get an offer from your existing credit card company or you find a free agent looking for a new credit card company that will give you a lower interest rate and you move your money to them.
With a balance transfer, you’re transferring some or all of a credit card balance from one credit card to another card to take advantage of a better interest rate. With most transfers, you’ll pay a transfer fee to the card company to which you’re transferring between 1% and 5% of the balance transferred.
With most transfers, there’s a temporary offer period when the introductory interest rate is lower. This rate will often become significantly higher rate after the offer introductory period ends or if you miss or are late on a payment – even one payment.
We’ve seen increases as high as 31%. Ouch!
What’s a balance transfer credit card?
There are three factors to consider when considering using balance transfer credit cards. They are the balance transfer fee, the introductory interest rate and the time frame for the introductory rate.
What’s credit card refinancing?
Credit card refinancing is similar to a balance transfer, but you’re combining the balance of two or more credit cards into one. You’re using one credit card to pay off the balance of the others. Usually, you’re doing this to take advantage of a better fee structure with the intention of paying off the balance before the fee structure changes.
What’s credit card refinancing vs. debt consolidation?
With credit card refinancing, you’re using one credit card to pay off one or more other credit cards. With debt consolidation, you’re typically using a personal loan obtained through a bank, credit union or other entity to pay off more than one credit card.
With credit card refinancing, you can complete as many transfers as you can get offers for, allowing you to kick the can down the road to paying off your debt as long as you want – not optimal. With debt consolidation, you’re locking in an interest rate and time frame in which you’ll pay off your debt. This can be good if you can refrain from using your credit cards with $0 balances and commit to paying off your debt.
Use the table below to find a debt consolidation loan if that is the right fit for you.
What are balance transfer, no-fee credit cards?
The chance of finding a balance transfer credit card with a low introductory interest rate that doesn’t charge a balance transfer fee is pretty low. This is how such cards make money, especially when the introductory interest rate is low or 0%.
You’ll find it common that fees for balance transfers on credit cards range between 1% to 5%. So, if you’re transferring $12,000 to a new card and the transfer fee is 3%, you’ll pay $360 for the transfer. This fee is typically added to the balance of your new card once the transfer is complete and you’ll make payments on this fee in addition to the balance you transferred.
Note: We’ve noticed that many balance transfer cards are doing one of two things; one, letting you transfer a percentage, such as 80%, of your credit limit or, two, calculating the amount you can transfer plus the transfer fee that doesn’t make you exceed your credit limit.
For example, if the transfer fee is 3% and your credit limit is $12,000, they’ll let you transfer up to $11,650. The $11,650 plus the 3% fee of $349.50, maxing you out at $11,999.50.
Here are some of our current favorite 0% interest rate balance transfer cards.
What are 0% interest rate balance transfer credit cards?
Balance transfer credit cards, especially 0% interest rate balance transfer credit cards, make the Debt Lasso Method the fastest method for paying off credit card debt. Most of these offers have an introductory period, the period of time you’ll get introductory interest, usually between 12- and 18-months common.
A 0% interest rate means that the credit card company or issuing bank won’t charge you ongoing, month-over-month or daily accrued interest on the card as long as you make your payments on time and make at least the minimum required payment.
So, if you have a 0% balance transfer card with a $12,000 limit for 18 months and you transfer $11,650 and with a transfer fee of 3%, you’ll have about a $12,000 balance to pay off over 18 months without being charged a penny more. Some card issuers, though, may charge an annual fee.
Note: Watch out for the fee hike! Many of these cards hike your fee for much higher rates than market-rate when the introductory period ends. So, put a reminder on your calendar to look for a new card two months prior to the introductory period ending if you think you won’t be able to pay off your balance before the introductory period ends.
Here are some of our current favorite 0% interest balance transfer card.
What’s the best balance transfer credit card?
Finding the best balance transfer card is like finding the perfect mate. Each card is different, and your situation is different than everyone else. You may have a high credit score and find it easy to qualify for a great card with 0% interest for 18 months. You may have a huge credit card balance on multiple cards and find it hard to get one credit card to give you enough credit to transfer all of your credit cards to one. You may have a low credit score and find it difficult to get a 0% offer.
Don’t fret. There are always solutions. It may take time, but you’ll get there. We’re here to help you. If you have questions, hit that Contact link at the top of the page and send us your question.
Here’s one of our favorite balance transfer cards right now.
Why we like this card:
- The balance transfer promotional offer lasts for 21 months, which is almost double other cards.
- There is not an annual fee.
- No late fees if you make a late payment.
- No Penalty Rate – rates do not increase if you miss or are late on a payment on purchases.
- Introductory 0% on purchases for the first 12-months after opening.
- You have 4 months to complete transfers.
What we don’t like about this card:
- The balance transfer fee is 5% (caveat on this, since the promo offer is for 21 months, you don’t have to complete multiple transfers, so this could save you money in the long run if you have a large balance to pay off.
- APR on purchases and transfers after the promo time period is over are moderate to high depending on creditworthiness.