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6 tips for dealing with credit card debt

Consumer Tips
6 tips for dealing with credit card debt

The debt crisis in American is approaching $14 trillion – and credit cards make up 26.2 percent of that total debt.

According to Debt.org, more than 189 million Americans have credit cards. An average household has at least four cards, carrying roughly $8,400 in credit card debt.

The good news – even for those struggling with credit card debt – is that interest rates seem to be on the decline. The average credit card interest rate for new cards is currently 17.3% APR*, down three quarters of a percentage point since the Federal Reserve cut rates in fall of 2019.

However, APR is still at a near record high – up from 16.8% in 2018.

Credit Karma reports that credit unions typically offer lower interest rates, as well as competitive rewards and membership benefits.

Tips for dealing with credit card debt

1. Assess your financial situation.

List everything you owe, including monthly bills, credit card balances and the annual percentage rate (APR) for each card. Then, compare expenses with income.

2. Prioritize your spending.

Before tackling credit card debt, cover the basics first, such as food, housing and clothing. Next, pay the minimum amount on all secured debts, like your home and car loans. Then, start working on paying down credit card debt with useful tools like Credit Karma’s Debt Repayment Calculator, followed by student loans. Try to only use cash or debit cards while paying down debt. Above all else, pay at least the minimum balance on all outstanding debt to avoid hefty late fees.

3. Establish a budget.

If you don’t need it, don’t justify buying something just because it’s on sale.

Once your debts have been prioritized, create a budget to track spending and minimize credit card debt. Use online tools like YNAB (You Need a Budget) to get started. Try to adhere strictly to your newly established budget.

4. Secure a better rate.

Negotiate a lower interest rate on your credit cards. Sometimes all it takes is a simple phone call to (politely) request a better rate. Shaving off even a percent or two could save you hundreds of dollars while repaying your debt.

5. Decide on a strategy.

When paying down credit card debt, devise an action plan. There are two main ways to do this. The most cost-effective way to pay down credit card debt is to focus on paying down the card with the highest interest rate first, while making minimum payments on the other cards. This “snowball strategy” allows you to free up more cash to pay toward the lower interest rate cards.

The other strategy is to pay the lowest balance first, while paying minimums on the others. This is the fastest way to get rid of debt on a single card.

6. Stay focused.

Feel like a boss when you reduce your debt.

Keep your eye on the prize! Perhaps getting rid of credit card debt will afford you a down payment on a house, new car or dream vacation. Write your goals down and keeping them in your wallet or purse. When tempted to overspend, take a peek at them for a big picture reminder.

*APR=Annual Percentage Rate