The love-hate relationship Americans have with their credit cards has not stopped them from piling on debt.
If you have some credit card debt to your name, you’re in good company. More than two-thirds (75 percent) of U.S. adults have a credit card balance greater than $0.
According to the Experian 2020 Consumer Credit Review, the typical American held $5,315 in credit card debt in 2020 - a decrease of 14 percent compared to 2019.
If you are one of the millions of Americans grappling with paying credit card debt from month to month, then 2021 needs to be the year you kick the debt for good.
This might seem like an unmanageable task, but it can be done. The secret is developing a clear plan and sticking to it.
To help you get started on the right path, this article will discuss 7 strategies you can use to eliminate your credit card debt.
What Exactly is Credit Card Debt?
Put simply, credit card debt is the share of your credit card balance that you haven’t paid off. It’s the fastest-growing type of debt, second only to personal loans.
The debt typically involves accounts that let you carry a debit balance. These accounts have variable interest rates, pre-set credit limits and payments calculated as a percentage of the unpaid balance.
At first, credit card debt may not sound like that big of a deal. But after using credit cards for a while, the minimum payments start becoming difficult to pay off. And before you know it, you’ve got $20k worth of credit card debt with nothing to show for it.
If you thought that credit card debt is only a result of careless shopping and spending, think again. Many Americans mount up credit card debt because they lack enough income to cover their basic living expenses and monthly bills.
People facing layoffs and furloughs turn to credit cards to stay afloat. Other contributing factors include medical bills, car and home repairs and interest charges.
How to Tackle Credit Card Debt
- Get Your Spending Under Control.
The very first step to tackling credit card debt is understanding your finances.
Most people accumulate credit card debt because they cannot control their spending.
Drop expensive habits and know what you can afford to buy. Before you go shopping, make a list of all the things you need to avoid impulse buying.
Next, review your monthly expenses and look for areas where you can cut back on.
If you’re among the 25 percent of Americans who don’t have emergency savings, over tapping your cards could be tempting.
Get a side hustle, increase your earnings and grow your emergency fund to fall back on.
- Consolidate Your Debt to a Single Card
The average American has 4 credit cards.
If you’re carrying debt on one card, there’s a good chance that you have debt on the other cards as well. If this is the case, consolidating your credit card debt is a great idea.
So what’s debt consolidation? This is a loan that pools all your debts into a single monthly payment.
If your credit is good, consider taking out a personal loan (or line of credit) to consolidate your credit card balances at a lower interest rate.
Also, stop creating new debt.
- Pay Off the Debt With the Highest Interest First (Debt Avalanche Method)
To reduce the amount you’re paying each month in interest, focus on paying off the debt with the highest APR first.
To get started, jot down all of your credit cards and arrange them in order of APR. Pay the amount you’ve budgeted toward the credit card with the highest APR each month while doing minimum payments on the rest of your accounts.
Move on to the next card on the list once the first card is paid off.
The reason this method is called avalanche is that it helps you conquer your debt quickly.
- Pay Off the Debt With the Lowest Balance First (Debt Snowball Method)
With this approach, your focus will be on paying off accounts with the lowest balance first.
Write down all of your credit card debt on a sheet of paper and arrange them in order of balance. Direct your larger payments toward the lowest balance, but don’t stop making minimum payments on your other accounts.
While the first balance may be small, you’ll feel driven to tackle the second-smallest debt, and so on.
You will end up paying more in interest than you would if you use the debt avalanche method, but this method gives you the motivation to keep going.
Don’t forget to reward yourself every time you pay down a card.
- Balance Transfer Credit Card
Initiating a balance transfer will help bring down your balance faster.
This method involves moving debt from one or more accounts to a different card with an introductory 0 percent APR period.
Since you’ll not be racking up interest during the promotional period, this can help your debt disappear faster.
- Negotiate for a Lower Rate
How long have you been a cardholder? 5 years, 10 or maybe 20?
If it’s a long time and you’re falling behind with payments, then it’s time to ask your card issuer for a lower rate based on your past history.
Sometimes, a simple phone call is all it takes to get a reduced rate. Lower interest rates make it stress-free to pay off debt.
The credit card industry is very competitive. To keep loyal customers, creditors reward customers who make timely payments.
While there’s no guarantee that they’ll lower the interest rate, you won’t get it if you don’t ask.
Some credit card companies are offering relief programs to customers affected by the pandemic. If you fall into this category, confirm with your issuer.
- Consult a Credit Counselor
Do you still feel overwhelmed?
If none of the methods works for you or you’re not sure how to start, you can always talk to a credit counselor.
A counselor will assess your financial situation and help you devise a personalized plan to pay off your credit card debt.
It Takes Work, But it’s Worth it
As you start making your way through the New Year, tackling credit card debt should be one of your top resolutions.
Remember, there isn’t one right method to pay off credit card debt.
Pick the method that motivates you the most, start saving and begin your journey to financial independence!