More than 41 percent of American households have credit card debt, with an average balance of nearly $6,000, according to figures of 2019. If you’ve gotten into the habit of carrying credit card balances, you may be paying hundreds of dollars in interest payments every month, and actually paying off the debt may seem impossible. But is not.
Credit card debt can be overwhelming, but it is not insurmountable. To pay it off and move forward with your life, you must have a firm grip on what you owe and develop a plan to pay it off.
How much do I owe?
Start by writing down exactly what you should. If you have balances on more than one credit card, create a list that includes each card, how much you owe, the monthly payment, and the interest rate.
Many people mindlessly pay the minimum payments or a little more each month without even having a real idea of how much they really owe. Put it in writing so you are fully aware of what you owe and how much interest you are wasting on those balances. This list will help you make a plan to pay off debt and give you an incentive to do so.
Choose a payment strategy
There are two common strategies for paying off credit card (and other debt): the snowball method and the avalanche method. You can have success with either, so choose the method that works best for you and suits your personality.
With the snowball method, you focus on paying off the smallest balances first. You organize your debts in order by balance size and pay only the minimum payment on each but the smallest balance. Then, you pay as much as possible toward that card until it’s paid off, moving on to focus on the next smallest balance. While you might be paying more interest on some of the larger balances, it takes less time to pay off the smaller balances. You will be able to experience success more quickly, which may encourage you to continue reducing your debt.
He avalanche method It is similar but requires you to organize your debts by interest rate. You focus on paying the one with the highest interest rate first, paying only the minimum payment on everyone else. Once you’ve paid off the card with the highest rate, you’ll move on to the next highest rate card, and so on. This method is intended to help you avoid paying more interest over a longer period of time, but it may take longer to celebrate success.
What changes do I need to make?
If you really want to get out of credit card debt and stay out of it, think about the reasons you ended up here. For most people, credit card debt is a symptom of overspending. Unless your credit card debt is the result of unexpected medical expenses, you may need to examine your habits to avoid continued debt.
For example, if you view your credit card as a means to buy things you can’t afford right now, it’s a matter of changing your thinking. Your credit card should be available only for emergencies that you can pay in full when the bill comes, or to make small purchases each month to pay off as a way to build a strong credit score.
To develop a healthier attitude toward credit, you may need to control your spending. Create a budget if you don’t already have one and stick to it. Include savings in your monthly or weekly spending plan so you can start building a financial cushion. If you have an emergency, you can finance it yourself instead of relying on a credit card in the future.
You’ll be able to pay off your credit card balances faster if you can get extra money to help. Consider cleaning out your closets and selling things you no longer use or need, and put all profits toward reducing your debt.
Talk to your cell phone provider, cable provider, and utility company and try to negotiate lower monthly bills. In many cases, there are special promotional rates that you will only get if you ask for them. Apply the extra money to your debt payments.
And regularly look for other ways to reduce the amount you spend so you can pay off credit card debt with that excess money. That may include eating out at restaurants less frequently, using public transportation or carpooling, and cutting back on entertainment or vacations.
What about balance transfers?
For some people, transferring high-interest credit card debt to a lower-interest form of debt may be a good idea. That way, you can save money on interest while you work to pay off the debt.
A balance transfer credit card is an option for transferring high-interest debt to lower-interest debt. Some credit cards offer zero interest on balance transfers for a set period of time, such as 12 months. If you are committed to paying off the debt before the zero interest period is complete, this may work for you. But if you think you might be tempted to make new purchases with the card, which would result in an even larger balance, it’s not a good idea. When your balance transfer period ends, you may be stuck with an even higher interest rate than you started with.
A personal loan is another vehicle for transferring high-interest credit card debt to a lower-interest option. A secured loan, such as a home equity loan, can generally offer a lower interest rate because it is secured by your home. If you take out a secured loan to pay off your credit card balances, then you may pay less interest while you work to pay off the loan. However, if you default on the loan, your home, or any asset used to secure the loan, could be at risk.
Whichever method you choose, working to pay off credit card debt will help you on the path to other financial goals. When you’re not spending money on credit card interest each month, you’ll have more available to save and invest.
