Last week I discussed how credit scores work. Unless you're paying all cash for your Lake Havasu home purchase, you're going to need to borrow money. Lenders want to see a good credit score. Higher scores mean lower interest rates. One way to bump up your credit score is by paying down your debt. Even if you're not in the market for a Havasu home at this time, paying down debt makes good sense. Learn how to tackle credit card debt with either the snowball or avalanche method.

Paying off/down credit card debt is key to increasing your credit score, which is important when you want to buy a Lake Havasu home. Which method would you use to do so? The snowball method or the avalanche method?

How to Tackle Credit Card Debt

Snowball Method to Pay Off Credit Card Debt

Search Lake Havasu homes for saleLiving in the desert, we never deal with snowballs. Unless we're talking about debt. With the snowball method of tackling credit card debt, you pay off smaller balances first. Start with a budgeted amount of money you dedicate towards debt repayment each month. Let's say you're willing to spend $800 a month towards paying off your debt. Of that, your minimum payment for every account totals $550. Take the remaining $250 and put it towards the lowest balance first.

You must pay the minimum due each month on every single credit card you own as well during this process. You don't want to incur late fees and credit score dings. After the smallest balance is paid in full, take the minimum you normally paid on it plus the $250 extra you budgeted towards debt payoff and start paying it on the next lowest balance. Once that account's paid off, continue to the next account. And so on. And so on...until you've paid off every single account in full. 

Avalanche Method to Pay Off Credit Card Debt

With the avalanche method, you still start with a dedicated sum of money to pay each month. And you still need to make the minimum payments on each account. However, instead of starting with the lowest balance, start paying off the account with the highest interest rate. Log in to your online accounts or check your statements to see what you pay in interest on each account. Once one account gets paid off, apply what you paid on that (minimum plus extra $250 based on the $800 monthly budget) to the account with the next highest interest rate. Paying off the highest interest saves you some money over the long haul in interest repayment savings.

Snowball or Avalanche: Which One is Better?

While it may sound like a smarter move to pay off credit card debt with the avalanche method, humans don't tend to work that way. Psychologically, paying off a smaller account gives you a feeling of accomplishment. This helps keep you motivated to stay on track for paying off the next account. And then the next...and the next...and so on.

The method you decide to use to pay off your credit card debt is completely up to you. Dough Roller offers a fantastic debt snowball calculator to help you see this plan in action. Whichever method you choose doesn't matter. What's really important is that you make a plan and stick to it. Which of these two methods appeals to you most and why? Please leave your thoughts in the comments below.

Suzan James, Havasu Realty, for all your Lake Havasu real estate needs