The 6 Best Ways to Get Out of Credit Card Debt
November 20, 2023
Many consumers use credit cards as a convenient way to pay for purchases and increase buying power. However, these advantages often don't outweigh the fact that credit card users can quickly get into deep credit card debt. The Federal Reserve recently reported that U.S. credit card balances increased to an all-time high of $1.03 trillion in the second quarter of 2023. In that same period, a $45 billion rise in credit card debt exceeded all other household debt[1].
If you are having trouble reducing your credit card debt, getting out of debt with a solid plan you can consistently follow is possible. We have some proven and effective credit card reduction strategies to share.
Pitfalls of Credit Card Debt
Since credit card debt is a high-interest revolving loan, you can borrow up to a set limit each month. This arrangement allows you to make cashless purchases while extending the full repayment indefinitely, provided you make the minimum payments on time and stay within the maximum balance limit.
Among the leading causes of rising credit card debt are rising interest rates, with a national average of 20.4%[2]. If you only pay the minimum payment each month, the high-interest rate can balloon your balance past the limit in a short period. This triggers over-the-limit fees. In addition, missed payments may lead to late fees and interest rate increases. However, you can overcome these challenges with a good credit card debt strategy.
The 6 Best Ways to Pay Off Credit Card Debt
You can develop a credit card debt strategy to free you from heavy debt. Here are six ways to get out of credit card debt.
1. Create a Payment Strategy
Developing a credit card strategy can give you more control over repaying your debt. It also allows you to track your progress more effectively. The following are some popular and effective payment strategies.
Eliminate One Debt at a Time
If you are like half of all Americans, you have several credit cards[3]. The key to this strategy is to choose one card at a time and pay it off while paying at least the minimum on the other cards. After you pay off one card, you can use the money that generally went to settle the old debt to pay off the next card even faster. You can start by listing your credit cards in the order you intend to pay them off.
Debt Snowball Method
The snowball method is a variation of the one card at a
time method, except you begin by paying off the card with the smallest balance.
As you roll over the payments from each paid-off card, your repayment power
increases like a snowball rolling down a hill. This payment strategy is
especially effective if you have limited funds to start the process.
Debt Avalanche Method
The debt avalanche payment strategy takes a different
approach. Instead of beginning with the card carrying the lowest balance, you
pay off the one with the highest interest first. This strategy can be quicker
and save you more money than the snowball method because you reduce your
monthly interest charges faster.
2. Pay More Than the Minimum Payment
Credit card issuers love it when you only pay the monthly minimum payments on your credit cards. Since most of their income comes from the interest charges each billing period, they profit more when you take longer to pay your debt. The average American household pays about $1,000 in annual credit card interest[4]. That amount could pay for a getaway to Indiana Dunes.
3. Debt Consolidation
Debt consolidation is an effective way to clear all your high-interest credit card debt by combining all the balances in one account with a lower interest rate. In addition, you can narrow your credit card debt into one payment. Here are a few single monthly payment debt consolidation options.
Credit Card Transfer
Many credit companies offer credit card accounts with a 0% interest introductory rate ranging from 12 to 18 months. If possible, find one with a credit limit large enough to handle a card balance transfer of all your outstanding credit card debt. The 0% interest charge can help you save money as you pay off as much debt as possible within the interest-free timeframe.
4. Negotiate With Your Creditors
Sometimes, reaching out to the right person or debt collector can help you escape a jam. You may get this kind of break from credit card issuers, who might negotiate payment terms or refer you to their hardship program. Many of them offer hardship programs that provide relief to borrowers experiencing challenges beyond their control.
5. Review Your Spending and Have a Household Budget
According to the Federal Reserve, credit and debit cards are the most popular forms of payment for American consumers[5]. The primary difference between the two is debit cards don't add to your debt and interest load. So, you could help your situation by reviewing your household budget to see whether you can keep more available cash in your bank account. This move can encourage you to use your debit card more for purchases than your credit cards. In addition, you should reserve credit card purchases to amounts you can pay off in a month.
6. Seek Debt Relief Assistance
You may find getting out of credit card debt too challenging to do on your own. In this case, you should consider debt relief options, such as a debt management plan offered by a nonprofit counseling agency. They may offer credible and effective ways to help you start to rebuild a brighter financial future.
Finding Your Best Credit Card Debt Payoff Strategy
These six credit card strategies provide solid options to help you get out of credit card debt. Your choice will depend on your preferences, situation, and financial resources. Also, keep in mind that it's in the merchants' and creditors' best interest to keep you an active consumer. This fact is why debt relief options exist. Read more about this and other financial strategies on Centier Bank's website.
This is intended to be informational only and not tax or legal advice.
Sources
[1] https://www.newyorkfed.org/microeconomics/hhdc
[2] https://www.cbsnews.com/news/credit-card-debt-how-to-pay-it-off-cbs-news-explains/
[3] https://www.experian.com/blogs/insights/2021/09/state-of-credit-2021/
[5] https://www.frbsf.org/cash/publications/fed-notes/2022/may/2022-findings-from-the-diary-of-consumer-payment-choice/
