The average household in the United States with at least a single credit card has more than $15,600 in credit card debt, with an average interest rate in the mid- to high teens. Americans owe more than $880 billion in credit card debt, so if you are struggling under debt that never seems to get smaller, you are not alone.
Falling in debt can be very easy, but getting out of credit card debt will take discipline and dedication.
The good news is it is possible, whether you are facing $1,000 to $30,000 in debt.
The following strategies will help you pay down your debt faster to free up your hard-earned money and put it towards saving for your future.
Identify the Source of the Problem
To get back in the black and stay there, start by identifying the source of your debt problem. Most people have no idea where their discretionary funds go after paying the bills.
Go through your bank statements for the past couple of months and find out where you are spending your money to start off with a clear picture of your finances.
Once you know where your money is going, you can identify areas where you can cut back, such as dining out too often or spending too much on entertainment. Not only will this help you eliminate needless spending, it will also give you more money to pay off your debt for good.
You’ll also want to put together a list of all of your credit card accounts with a current balance, the interest rate you’re paying and your minimum due.
This will help you determine which strategy will work best for you and keep you motivated until all of your balances are $0.
Option 1: Get your interest rates reduced
The lower your interest rate, the more your monthly payment will go towards your balance instead of interest.
If you have good credit, you can try applying for a 0% balance transfer card that will give you 0% interest for a specific amount of time — potentially up to 18 months — but you need to watch for transfer fees of up to 4%.
If you go this route, calculate how much interest you will save over the life of the offer compared to the transfer fee you will pay to see if it’s a good deal.
If you don’t want to get a new card or you don’t qualify, try to negotiate lower rates on your existing cards. Even shaving off 1% can save you hundreds as you work to pay down your debt.
Call up each credit card company and politely request a lower rate. Be sure to play up how long you have been a customer and if you have a spotless credit history. You should also have a target rate in mind to ask for.
Option 2: Start with the highest interest rates
If you are motivated by the numbers and savings, the best option is paying off the account that does the most damage first. This will be the card with the highest interest rate.
Make the minimum payments on all other accounts and focus all of the money you can spare in your budget on this single account to get it paid off first. Once that’s out of the way, you can move on to the account with the next highest rate.
Option 3: Start with the lowest balance
Also known as the “snowball” method, this way of paying off your debt is focused on keeping you motivated rather than giving you the most savings.
All you need to do is pay off your debts from smallest to largest, regardless of the rate. Paying off the first account quickly will help you stay motivated to get the next account paid off.
As you work to pay off your debt, make sure you avoid using your credit cards, which will only add to the problem. Start carrying cash and keep the plastic at home where you will not have easy access to them, but do not cancel them.
Track your progress every month and take the time to celebrate your success, whether you have paid off your first $1,000 or your first account.
Keep a note somewhere visible with your starting balance and update it with your current balance to remind yourself how far you have come.
It can also help to give yourself a goal. Maybe you want to get rid of your debt so you can save up for a down payment on your first home, or you want to start putting money away for retirement. Write down your goals and look at them whenever you feel tempted to overspend or give up.