How to Pay Off Credit Card Debt

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Thanks to inflation, it’s harder than ever to pay off credit card debt. You can shake your fist at the sky or the Federal Reserve or the pandemic policies that have made everything cost more.

The bottom line is that Americans are piling up debt at the fastest rate since the credit card was invented.

“As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in the company’s May 2023 report.

Total credit card debt is $986 billion. That’s a 17% jump in one year. The average American carries $5,733 in credit card debt, and only 35% are paying off that balance every month.

The average credit card interest rate has soared to 20.9%. That’s the highest since the Fed began tracking annual percentage rates in 1994.

That’s the bad news. The good news is that all of the bad news doesn’t have to drive you crazy or into the poor house. Here’s what you need to know.

The Importance of Paying Off Credit Card Debt

Let’s put this in real inflationary terms. If you owed the aforementioned average of 5,733 in 2022, your total interest payments would have been $1,003.

One year later, it would be $1,330.

That’s $330 hard-earned dollars essentially spent on nothing. Then there are the benefits of having a good credit score.

Carrying a hefty monthly balance damages your credit because 30% of your credit score is based on credit utilization. Ideally, you won’t rack up charges of more than 30% of your credit.

So, if your total credit limit is $10,000, your total balance should not exceed $3,000. If it’s higher than 30%, it indicates to potential lenders that you’re having trouble managing your financial responsibilities. You’ll risk being turned down for a loan or paying higher interest rates if you do get one.

So, how do you increase your credit score? Paying your bills on time and lowering your debt burden are the two big ones, and there are other tricks of the trade that are worth researching as well.

8 Tips to Manage and Reduce Credit Card Debt

Eliminating credit card debt depends on three things: spending habits, saving habits and determination. That last one will make the following steps more manageable.

1. Continue to Pay Your Credit Card Bills on Time

Paying on time means no late fees and other charges. Paying the entire balance on time means you won’t be socked with exorbitant interest charges.

The fine print in your credit card agreement gives the issuer a lot of ammunition to make your life miserable if you’re late on a payment. That will eventually show up on your credit reports at the three major credit bureaus (TransAmerica, Equifax and Experian).

2. Practice Responsible Spending

Learn to live within your means and look for ways to cut your expenses.

  • Use credit wisely: If you’re thinking about charging something you can’t pay off in three months, think again.
  • Develop a realistic budget and stick to it: Write down your monthly income and expenses, then track your spending.
  • Avoid impulse buying: Stick to your shopping list. Leave your credit card at home and carry only the amount of cash you’ve budgeted for your shopping trip.
  • Tighten your extravagances: Make coffee at home and skip that $5.29 Blond Espresso Roast at Starbucks. Don’t let magazine covers, popup ads, shop windows or Kardashians trigger your fashion spending impulse.
  • Examine your bills: See if you can cut back on cable, internet, and streaming platforms. Review your insurance policies for possible savings.
  • Look for grocery deals: Wait for sales and use coupons. Consider buying less expensive store brands. They’re often as good as the name-brand products.
  • Take care of your possessions: Proper maintenance extends the life of things you rely on and helps you avoid big-dollar repair bills.

3. Choose a Credit Card Payment Strategy

If you’re serious about paying off credit cards, it means making more than the minimum monthly payment. There are three proven methods to do that.

  • Debt Snowball: This involves paying off the card with the lowest interest rate first. That motivates you to pay off the next-lowest, then the next, and it snowballs until you’ve paid off all your debt.
  • Debt Avalanche: This is the opposite approach. Attack the card with the highest interest rate first. Work down from there. It makes more mathematical sense than the snowball, but it lacks the quick gratification that some consumers need.
  • Automating Your Payments: It’s a simple way to stay current on your bills, thus avoiding late fees, penalty interest and bad reports to credit monitors. Just keep a close watch on your bank balance. Overdraft fees can be worse than late penalties.

4. Make Sure You Have an Emergency Fund

Life happens. People get laid off, cars break down, kids need stitches, the air conditioning unit goes on the fritz. They aren’t regular expenses, but unexpected bills always seem to always pop up.

To be prepared, try to build an emergency fund. Ideally, it should equal six months of expenses, in case you find yourself out of work. That will keep you from having to slap down that expense on your credit card.

5. Pay More Than Your Minimum Payment

Credit card companies love it when customers pay the lowest amount required to avoid late fees. It barely reduces the overall balance and the interest charge. You’ll do yourself a huge financial favor by paying as much as you can every month.

A good approach is to target specific purchases on your bill. Camping equipment from Dick’s Sporting Goods. The lawn mower from Home Depot. The Hunter Biden painting.

Whatever the item, research shows consumers pay 15% more when they scan their statements and choose specific purchases to repay.

6. Consolidate or Transfer Your Credit Card Debt

Consider rolling all your high-interest bills into one with a lower overall interest rate. Such debt consolidation programs have helped countless consumers conquer their debt problems.

Consolidating with a low-interest personal loan from a bank, credit union or credible peer-to-peer source will lower your overall bill and help you manage multiple credit card payments.

You could also take advantage of balance-transfer cards. Get a credit card with an extremely low (probably zero) introductory rate, then transfer the balances from your other cards to the new one.

But be aware, there’s usually a transfer fee of at least 3%. And pay off the bill before the introductory rate expires (usually 12 -18 months), or you’ll get hammered by the inflated regular rate

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