The average American in 2018 had a credit card balance of $6,375. That is 3% more than it was last year. In fact, nationwide, American debt has reached an all-time high. Americans owe over $1 trillion as of 2017.
If you are carrying a credit card balance that you can’t afford to pay in full today, you could be in trouble.
Read on to learn how to reduce credit card debt quickly and effectively.
The Snowball or Avalanche Method
If you are carrying a balance on several credit cards or store cards, the snowball or avalanche method can help.
First, make a list of all your debts and their minimum monthly payments. Decide which of these debts you want to pay off first.
You might want to pay the one with the smallest balance first to get it out of the way. This is called the snowball method. It is a great way to stay motivated because you pay off your first debt fairly quickly.
Or you may want to pay off the one with the highest interest rate. This is called the avalanche method. This method makes logical sense because you avoid paying a high-interest payment for longer than absolutely necessary.
But it can be hard to stay motivated if the balance is high on that card. Weigh the pros and cons of each and make your choice.
Once you select which method you prefer, figure out how much you can put towards paying down your debt each pay cheque.
Take that number and subtract all the minimum payments. Whatever is left over is the amount you should put on your selected credit card.
Once you pay off the first balance in full, use all the money you were paying towards it each month and add that to another credit card.
When you do this, your payments start to snowball (or avalanche). Pretty soon you are out of debt completely.
Improve Your Rates
You can reduce your debt much faster if you have a lower interest rate.
Even a one percent savings will turn out to be hundreds of dollars over the course of your debt repayment plan.
It’s not hard. Just make a phone call to your credit card providers and ask them to lower your interest rate.
They might do it, or they might not. Either way, it’s worth a shot.
Transfer Debt to One Card
If you have room on your lowest-interest card, you should do a balance transfer so you have all your debt on one card.
This will save you money in interest payments. And it will give you just one monthly payment. This is a good solution for people who are overwhelmed with having multiple due dates.
Related – Tips for Choosing a Credit Card
Balance Transfer Cards
Often, balance transfer credit cards offer a zero percent interest rate when you transfer balances to this card for a set time. Often six to 18 months.
Sometimes the card will charge you a balance transfer fee of 3-5% of your balance. But it may be worth the cost to save money on interest.
Note: you will need a good credit score to qualify. And you may not get a high enough credit limit to move all your debt to this one card.
Get a Personal Loan
Another option is to sign up for a personal loan. You can get a personal loan from various sources including Banks, credit unions and online lenders.
A personal loan often has a much lower interest rate than credit cards. if you have a good credit rating, you could get a loan at just 5-10% interest. This will save you thousands of dollars compared to the 18% most credit cards charge.
Many loans are conditional on credit score. Learn how to get a loan with bad credit.
Again, having your debt all in one place makes it easier to manage your repayment. And it will feel good to put a large sum each month onto the debt.
Keep in mind that some lenders charge an origination fee. This fee may be between 1 and 6 percent of the total loan amount.
It’s best to compare your options to see what the best option is for you. A personal loan may not be the right choice for you.
Control Your Spending
Getting out of debt only works if you are spending less than you earn.
Ideally, while you are paying off your debt you will not use your credit card at all. But if you do plan to use your card, make sure that you know how much you are spending and keep your spending in control.
The best way to prevent overspending is to have and stick to a budget. You don’t have to skimp on everything and live off crackers. Instead, you should set a realistic budget that forces you to cut back on some expenses.
Maybe you cut out your daily Starbucks drive-through and make coffee at home. You can also see about lowering your cable bill or cell phone bill.
Don’t feel overwhelmed. Small cutbacks can equal a big difference. Make a plan to cut back on three expenses.
Bottom Line on How to Reduce Credit Card Debt
Thank for reading. Now you understand how to reduce credit card debt.
Getting out of debt takes determination and consistency. But it is worth the effort to achieve financial freedom. Avoiding overspending plays a big role in debt elimination as well.
Now that you are resolved in getting on top of your debt, start implementing these 10 smart money habits.