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Should I Pay Off My Credit Card Debt Immediately or Over Time?

If you've come across extra cash and have credit card debt, you may wonder whether it's a good idea to pay off your balance all at once or over time. You may have heard carrying a balance is beneficial to your credit score, so wouldn't it be better to pay off your debt slowly?

The answer in almost all cases is no. Paying off credit card debt as quickly as possible will save you money in interest but also help keep your credit in good shape. Read on to learn why—and what to do if you can't afford to pay off your credit card balances immediately.

Does Paying Off Credit Cards Slowly Help My Credit Score?

It's an oft-repeated credit myth that carrying a credit card balance helps your credit scores. In reality, high balances on revolving credit accounts can mean high credit utilization, which can hurt your credit standing.

Your credit utilization ratio is a comparison of your credit card balance to your total credit limit, expressed as a percentage. It's the second most important factor in your credit score calculation, making up 30% of your FICO® Score . To calculate it, divide your total credit card balances by your total credit card limits. The lower the ratio is, the better for your credit health. Keep it under 30% to avoid hurting your scores; experts suggest keeping it under 7% for the best scores.

The effect credit utilization has on your credit scores is a strong argument for paying off your credit card balances every month—but it's not the only one. Carrying a balance can cost you heavily in interest.

How Making Minimum Payments Can Cost You

Payment history is the most heavily weighted credit score factor, so making credit card payments on time every month is essential to keeping your credit in good shape. It also helps you avoid late fees.

If you only make minimum payments each month, however, you'll pay interest on the remaining balance that carries over to the next billing period. Plus, most credit cards charge compounding interest, which can make credit card debt snowball fast and take years to repay.

Say you owe $3,000 on a credit card with an 18% annual percent rate (APR), and your minimum payment is 3% of the balance or $25, whichever is greater. If you make just the minimum payments, it will take you nearly 14 years to pay off the debt. On top of that, it will cost you almost $2,700 in interest, nearly doubling the amount you owed originally.

How to Pay Off Credit Card Debt

The impact on your credit and finances of carrying credit card balances should be enough to convince you that low or no credit card debt is best. But don't get discouraged if you can't afford to pay off your credit cards all at once. The average U.S. consumer carries a credit card balance of nearly $6,200, not an amount most can quickly come up with. While it may feel overwhelming, try to focus on paying down the debt as soon as possible.

Here are strategies to help you pay off credit card debt.

Debt Avalanche Method

The debt avalanche method of paying down credit card debt can help you save money on interest. After making minimum payments on all of your credit cards, put some extra money on the card with the highest annual percentage rate (APR). Once it's paid off, move to the card with the next highest APR, and so on. This will allow you to decrease the total amount you'll pay by reducing the amount of interest you accrue.

Snowball Method

While getting rid of high interest debt first makes more sense financially, it can be hard to stay motivated if that card's balance is high and taking a long time to pay off. In that case, it might be wise to look into the snowball method.

With this method, you put extra money toward the credit card with the lowest balance while continuing to make minimum payments on the rest of your cards. After that card is paid off, apply the extra funds to the card with the next lowest balance, and so on. You will pay more in interest in the long run with the snowball method but you'll see progress paying off cards sooner, which can encourage you to keep going.

Debt Consolidation

If you have a good credit score, it might make sense to look into debt consolidation.

One way to consolidate debt is by getting a balance transfer card that comes with an introductory 0% APR for a set period. During this period, which can last as long as 21 months, you pay no interest on the balance you've transferred. This will help you lower the amount you owe because you'll pay less in interest—as long as you pay off the entire transferred balance by the end of the introductory period.

Another option is to take out a debt consolidation loan with a lower interest rate than your credit cards have. The idea is to combine multiple balances into one loan with fixed monthly payments to save on interest and possibly pay off the debt faster. Rolling numerous payments into one can also make it simpler for you to manage your debt.

Before choosing a strategy to deal with your credit card debt, it's a good idea to check your credit score. Balance transfer credit cards typically require a good to excellent credit score. And while it might be possible to qualify for a debt consolidation loan with poor credit, the interest rates may be higher than the APRs on your current credit cards.

The Bottom Line

Whether or not you can pay off your credit cards immediately, make it a priority to maintain a positive payment history and use credit responsibly. Even if it takes a while to clear your balances, your credit will thank you in the end—and so will your bank account.

Credit Card Payoff Calculator

The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.