The good news is Americans now have less credit card debt on average than they did during the Great Recession — nearly $90 billion less, according to WalletHub. Still though, while things are heading in the right direction, many Americans are still struggling with the burden of credit card debt.
Making minimum payments is better than falling behind on payments, but if you’ve ever tried this strategy you’ll notice it barely puts a dent in your balance. It will also take you much longer to pay off your debts with this approach in addition to all the extra interest charges you’ll pay.
So, how can you get out of credit card debt efficiently and effectively? You could start by taking a look at the analysis of Freedom Debt Relief (a debt relief company that can help you settle your debt with creditors for a lesser amount), but you can carry on reading, here are three tips.
Pay Down Your Debts in Order
One of the biggest tips for paying off credit card debt has to do with the order in which you prioritize making payments on your accounts. It’s important to keep up minimum payments on every account, but devoting any additional funds you have to one account at a time can help you strategically eliminate your debts much faster. Once you’ve knocked out one, you simply move onto the next.
The most cost-effective version is the “avalanche,” or putting most of your money toward whichever account has the highest interest rate at a given time. This ends up minimizing the amount you end up paying in interest.
Perhaps the most motivational version of this strategy is the “snowball,” or putting most of your money toward whichever account has the lowest balance at a given time — regardless of the interest rates on your balances. This approach tends to help borrowers gain momentum as they go, finally helping them tackle their most daunting debts at the end of the line.
Transfer Your High-Interest Credit Card Balance(s)
If getting a break from growing interest charges for a period of time would help you chip away at your debts — or, ideally, eliminate them altogether — transferring one or more balances to a new card may be a smart option. If you qualify, this special card will require little or no interest payments for a certain amount of time, affording you breathing room to work down your principal balance. Be aware you may have to pay a fee per balance transferred, and that the promotional period will indeed end. Avoid making purchases on the balance transfer card, as most cards do not offer the same low-interest terms on purchases as they do on pre-existing balances.
Balance transfers are just one of several debt consolidation strategies — another of which involves using a personal loan to repay credit cards if you’re able to qualify for lower interest.
Treat Credit Cards Like Debit Cards
If you’re struggling to manage your credit situation, it may seem tempting to close your cards altogether. But doing so could actually hurt your credit score and disqualify you from earning perks and rewards.
A more sustainable strategy involves continuing to use credit, but treating it more like a debit card. In other words, charging only what you know you can afford to pay off at regular intervals from your checking account. This will help you access the benefits of responsible credit card use, like improving your credit rating over time, without adding onto your outstanding balances and costing you interest in the long run.
Paying off credit card debt is rarely a quick or easy process, but it’s worth it to help keep your hard-earned money in your pocket — rather than going toward ever-growing interest charges — and to give you more peace of mind about your overall financial health.
