The average credit card balance was $5,000 at the end of 2020, according to the Consumer Financial Protection Bureau. If you’re struggling with credit card debt, these seven strategies can help you minimize your financial burden and become debt-free.
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- Contact your credit card company
- Make a plan to pay off your debt
- Pay more than the minimum
- Use the debt snowball or debt avalanche method
- Take advantage of a 0% APR balance transfer credit card
- Review your monthly spending habits
- Consider taking out a debt consolidation loan
To start, reach out to your credit card company (or multiple companies if you have several cards). Explain your situation and ask if there’s anything they can do to help you out.
Depending on the company and your history with them, they may lower your interest rate, give you a temporary payment reduction, or change your payment due date. If you’ve been a loyal, long-time customer and have kept up with your payments, they may be willing to work with you.
If you don’t have a budget, it’s time to make one. To get started, list all your debts, which may include credit cards, auto loans, personal loans, and student loans. Then, jot down all your essential expenses, like groceries and utilities.
Next, determine your monthly after-tax income so you know how much money you have to put toward your debts, as well as essential and discretionary expenses. You can keep track of your budget manually or use a budgeting app.
If you’re struggling to make your budget work or you don’t have enough to pay down your debt, you’ll need to make some changes. You may reduce your expenses, increase your income, or both.
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It may be tempting to make only the minimum credit card payment each month. But paying the full balance when possible, or more than the minimum, is ideal. This is because any balance you carry over to the next month will start to accrue interest and cost you more every day.
A high credit card balance can also affect your credit utilization ratio, which is the amount of credit you’re using compared to your credit limit. If your credit utilization is more than 30%, your credit score could go down and even prevent you from being able to take out credit cards and loans with low rates in the future.
The debt snowball and debt avalanche methods are two debt payoff strategies you can use to repay your credit card debt. With the debt snowball method, you focus on paying off the debts with the smallest balance first, no matter their interest rates. This is a good option if your goal is to stay motivated and celebrate small wins.
If you choose the debt avalanche strategy, you’ll prioritize the debts with the highest interest rates. While you won’t see your balances disappear as quickly, the debt avalanche makes sense if you’d like to save as much money on interest as possible.
If you want to avoid paying tons of credit card interest charges, a 0% APR balance transfer card is worth considering. It can allow you to move your current credit card balance onto a new card and avoid paying interest for a set period of time, often six to 18 months.
Keep in mind that you’ll typically need good credit to qualify, and you’ll likely be on the hook for a balance transfer fee — typically 3% to 5% of each balance you transfer. Also, once the introductory APR period is over, interest will start to accrue at the card’s regular rate. Before you move forward with a balance transfer card, make sure you’ll be able to pay off the balance at the end of the introductory period or you could find yourself back at square one.
Chances are you have some expenses that you can reduce, or even eliminate altogether. Take a close look at your monthly spending habits and get creative with ways you can spend less and save more.
For example, if you have a gym membership you rarely use, you could cancel it. You may also want to cook most of your meals at home rather than ordering takeout or dining at restaurants. Another option is to downsize to a smaller apartment or house, or get a roommate to help share housing costs.
Every big and little change in your spending habits can make a positive difference in your efforts to pay off credit card debt. The less you spend, the more you’ll have to put toward your credit card balances.
A debt consolidation loan is an unsecured personal loan that lets you combine multiple debts into a single loan that may include a lower interest rate and fixed repayment schedule. This strategy can make it more manageable to pay off your credit cards because you’ll have a single payment to worry about, instead of multiple payments.
You may also be able to save hundreds or even thousands of dollars in interest charges and pay off your credit cards faster. The downside is that it can be tough to qualify for the best rates on a debt consolidation loan unless you have good to excellent credit.
You might also have to pay fees on the loan, like an origination fee. In addition, a debt consolidation loan won’t help if you’ll be tempted to run up your credit card balances again. Still, this type of loan can be a good option for consolidating your high-interest debt and can allow you to become debt-free sooner.
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