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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 reduce your financial burden and free you from debt.
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1. Contact your credit card company
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 tracked your payments, they may be willing to work with you.
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2. Make a plan to pay off your debt
If you don’t have a budget, it’s time to make one. To get started, list all of your debts, which can include credit cards, car loans, personal loans, and student loans. Next, write down all of your essential expenses, such as groceries and utilities.
Next, determine your monthly after-tax income so you know how much money you need to spend on your debts, as well as essential and discretionary expenses. You can track your budget manually or use a budgeting app.
If you’re struggling to make your budget work or don’t have enough to pay off your debt, you’ll need to make a few changes. You can reduce your expenses, increase your income, or both.
3. Pay more than the minimum
It can be tempting to only make 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 carried over to the next month will start earning interest and will cost you more each day.
A high credit card balance can also affect your credit utilization rate, which is the amount of credit you use against your credit limit. If your credit utilization is over 30%, your credit score could drop and even prevent you from being able to take out low-rate credit cards and loans in the future.
The snowball and debt avalanche methods are two debt repayment strategies you can use to pay off your credit card debt. With the debt snowball method, you focus on paying off the debts with the smallest balance first, regardless of their interest rates. This is a good option if your goal is to stay motivated and celebrate small wins.
If you opt for the debt avalanche strategy, you will favor debts with the highest interest rates. While you won’t see your balances disappear that quickly, the avalanche of debt makes sense if you want to save as much money as possible on interest.
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5. Enjoy a 0% APR Balance Transfer Credit Card
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 transfer your current credit card balance to a new card and avoid paying interest for a fixed period, often six to 18 months.
Keep in mind that you’ll generally need good credit to qualify, and you’ll likely have to pay a balance transfer fee – typically 3% to 5% of each balance you transfer. Additionally, once the APR introductory period is over, interest will begin to accrue at the card’s regular rate. Before going ahead with a balance transfer card, make sure that you will be able to pay off the balance at the end of the introductory period or you could find yourself back at square one.
6. Review your monthly spending habits
Chances are you have expenses that you can reduce or even eliminate altogether. Take a close look at your monthly spending habits and get creative with spending less and saving more.
For example, if you have a gym membership that you rarely use, you can cancel it. You can also prepare most of your meals at home rather than ordering takeout or dining out. Another option is to downsize to a smaller apartment or house, or find a roommate to share housing costs.
Every change, big or small, in your drinking habits can make a positive difference in your efforts to pay off credit card debt. The less you spend, the more you will need to invest in your credit card balance.
7. Consider taking out a debt consolidation loan
A debt consolidation loan is an unsecured personal loan that allows you to combine multiple debts into one loan that may include a lower interest rate and a fixed repayment schedule. This strategy can make it easier to pay off your credit cards because you only have to worry about one payment, instead of multiple payments.
You might 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 difficult to qualify for the best rates on a debt consolidation loan unless you have good to excellent credit.
You may also have to pay fees on the loan, such as origination fees. Also, a debt consolidation loan won’t help you if you’re tempted to increase your credit card balances again. Still, this type of loan can be a good option for consolidating your high-interest debt and can get you out of debt faster.
If you are looking for a debt consolidation loan, visit Credible for compare personal loan rates to find the one that suits your needs.