Welcome to part 6 of our 7-part series on American Consumer Debt. We hope that you have found the information on how to reduce your debt helpful up to this point! This section focus on one of the most dangerous yet common challenges faced by most Americans, high-interest credit card debt.
How To Get Rid Of High-Interest Credit Card Debt
Just over 90% of American adults have a credit card. Given today’s climate, if you have a credit card, then there’s a high probability that it’s carrying some balance. The average household debt before Covid-19 was over $8,000 and is likely much higher now.
Credit Card Debt Is Dangerous: Regardless of what you see on the commercials and what other finance ‘gurus’ may tell you, credit card debt is nothing short of dangerous. You get lured in with low-introductory APRs, and the available credit plays on the human impulse to feel a reward. Buying that new TV feels good. Buying those new shoes feels good.
But eventually, you’re stuck paying 20% on a purchase you never needed in the first place. Making those minimum monthly payments will take you forever actually to pay the bill off.
If you’ve been following along with our series on debt, then you’re going to recognize a lot of the methods mentioned below. Different people have different financial situations, so one method is not better than the other. It’s just a matter of what fits you.
Before we get started… There are some tips that you should try at any time during the debt elimination process and a few things you should know:
- You can call your credit card company and outright ask them for a lower interest rate or a lower minimum monthly payment. If you’ve been a good customer, they’ll work with you.
- A budgeting app like Mint helps you truly see how wasteful you may have been with credit card spending.
- Canceling your credit cards does not magically eliminate the debt. Because your credit is partially calculated on how much you owe vs. your credit limit availability, canceling the credit cards can severely hurt your credit score. Cut them up, but don’t cancel them.
Paying Off Credit Cards
Gather up all of your credit card bills and list them out from their smallest to largest by balance. Pay the minimum payments on all of them except for the smallest debt. Pay as much as you safely can on that one. Once it’s paid off, please take what you were paying on it and roll that payment into the next one in line. This is the Debt Snowball, and it is extremely effective with credit cards.
You can also try the same method as above but attack the credit card with the highest interest rate. This is the Debt Avalanche method, and it is a great way to save more money in the long run. It’s not as popular because many people are interested in freeing more money each month than paying down higher-interest cards.
Consolidating Credit Cards
Depending on what shape your credit is in, you may be able to consolidate all of the debt into one monthly payment. This one monthly payment is usually less than all of your other payments combined, and it usually has a lower interest rate which makes it easy for you to save more money over time.
Zero-Balance Transfer – If you have the discipline not to use your credit cards once they’ve been paid off and feel like you can pay your balance off within a year if you had some help, then a zero-balance transfer deal might be just the thing for you. Other credit card companies will compete for your business. They may offer to pay off your current credit card bills and just let you pay them back at 0% interest for 12 months.
Zero-Balance Transfers require a lot of discipline because it’s easy to start reusing those old cards once your balance on them gets taken care of.
Personal Loan – If your credit is in decent shape, then a bank or credit union may approve you for a personal loan to consolidate your debt. They will give you enough money to pay off your credit cards, and you will then owe them one monthly payment. If your debt was pretty bad, they might ask that you cancel your credit cards as part of the conditions for taking out the loan.
There are more options for credit card debt.
Many people with credit card debt are so far in their heads that they start looking at other options. They may consider debt settlement or chapter 7/13 bankruptcies. Because these are such serious subjects, we will dedicate our final installment to dealing with extreme debt-eliminating measures.