Credit card debt is one of the most destructive forms of debt there is, yet more and more people are carrying balances on their cards. Americans owe more than $1 trillion to credit card companies, which averages to about $8,400 in debt per household with a card. Plus, unlike student loans or mortgages, credit card providers charge mile-high interest rates that punish anyone who can’t pay their full balance each month.
Thanks to these high rates, credit card debt can snowball and card owners often find themselves in what feels like a bottomless pit. Attacking credit card debt requires a conscious effort and tangible steps, not vague goals like “spending less money.” You’ll need to be proactive and prepared to make sacrifices. To get started, view these five tips to pay off credit card debt.
Know What You Owe
Many indebted cardholders are afraid to open their statements because the anxiety of seeing large balances is too much to handle. But you can’t build a plan of action without knowing exactly what you’re up against. Tally up the balances on all your cards in one place, like an app or spreadsheet. Some mobile apps will even link all your cards and balances so that you have a clear figure on what you owe.
Develop A Strategy
Once you know how much you actually owe on each card, formulate a strategy using your balances and interest rates. There is no one single strategy for handling credit card debt. Dave Ramsey prefers the “Snowball Method” where you pay off your smallest debts first. By hitting the easiest marks early, you build up emotional momentum and can positively reinforce behavior changes.
At the other end, there’s the “Avalanche Method”, where you start with the cards with the highest interest rates. By paying down the most expensive debt first, you minimize the total amount you’ll spend paying off your credit cards. But regardless of the method you choose, any strategy for reducing credit card debt also requires a budget. If you don’t learn where your money goes each month before you spend it, you could find yourself quickly back in the hole.
Increase Your Income or Decrease Your Spending
Debt happens for a number of different reasons, but when people get themselves in trouble, it always comes back to a single factor—spending outpacing income. Getting into debt requires spending beyond our means, so getting out of debt requires the reverse: you’ll need to spend less or make more. One of the quickest ways to put a dent into your debt is by picking up a side gig or part-time job. If you can earn an extra $400 per month on the side, that’s $400 more that can go entirely to the principle of your credit card debt.
If you don’t have time to increase your income, you’ll need to cut spending. Look for different areas of your life when you’re spending frivolously—maybe it’s too many streaming services, or you buy Starbucks every morning despite getting free coffee at the office. If you want to get serious about debt, find a way to both increase your income AND decrease your spending.
Consider Balance Transfers or Consumer Loans
If your credit card debt is too much of a burden, you can buy yourself some time with a balance transfer. Many credit cards will allow you to transfer a balance from an old card to a new one and pay no interest for a period of 6-18 months. A balance transfer doesn’t decrease your debt load, but it will allow you to just pay the minimum without interest fees racking up.
Additionally, a consumer loan can sometimes assist in lowering your debt load, especially if your credit has improved since you accumulated the debt. Credit cards often carry interest rates as high as 24-26%, but a consumer loan for credit card consolidation might only have an interest rate of 10-13%. If you can get a good rate on a personal loan with a manageable monthly payment, it could end the snowballing cycle of credit card debt.
Learn to Use Credit Cards Wisely
Credit card interest rates are outrageous, but that doesn’t mean credit cards are poor financial tools. If you can learn to use credit cards responsibly, you can earn a wide variety of perks like cash back, travel rewards, gift cards, and more. Some cards offer 5% cash back on spending categories like gasoline and groceries while others offer airline miles and hotel discounts for travel. Prudent credit card usage not only earns you rewards, but it also boosts your credit score.
Work With an Experienced Financial Advisor
We hope these five tips to pay off credit card debt assist you. If you’re currently in credit card debt, it’s likely because the temptation to spend speaks louder than the urge to be frugal. Some people will be unable to use credit cards wisely due to this temptation, and those cards should probably be cut up and cancelled. But if you have good spending habits and financial discipline, credit cards can smooth your monthly spending while earn you some terrific benefits. Contact the team at Good Life Financial Advisors of Mount Pleasant to discuss your financial needs.