Credit cards are a leading cause of financial stress for many people.
In fact, the average American now owes $6,360 on their cards, and total U.S. credit card debt has reached a record high of $1.13 trillion.
Not only are more cardholders struggling to keep up with their payments, but delinquencies and defaults are also rising. If you're struggling to stay on top of your credit card debt, here are some tips that could help you regain control of your finances.
TOTAL CREDIT CARD DEBT IN THE U.S
Note: Shaded area indicates recession.
Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit
Data as of Feb. 6, 2024
According to former acting chair of the White House Council of Economic Advisers, Tomas Philipson, the current $1 trillion in credit card debt is only the beginning. With inflation and rising interest rates, this figure is expected to continue to grow, further stressing American consumers. If you're feeling overwhelmed by your credit card debt, you're not alone. There are steps you can take to regain control of your finances and start paying down your debt.
"Inflation and rising interest rates are putting a lot of pressure on American consumers, leading many to rely more heavily on credit cards. This is a vicious cycle, as the more debt they accumulate, the harder it becomes to get out of the hole," said Philipson.
Already, credit cards are one of the most expensive ways to borrow money. The average credit card charges a record high 20.74%, according to Bankrate.
But there are proven pay-off strategies that work, experts also say. Here is their best advice for tackling that high-interest debt once and for all, including one analyst’s “favorite tip.”
In a nutshell, here's how to jump-start your debt repayment plan:
1. Try a 0% balance transfer credit card
The best tip for getting out of credit card debt is to sign up for a balance transfer card with 0% interest. These cards allow you to consolidate your debt and pay it off without accruing any interest for up to 21 months. This can help you make faster progress on paying off your debt, and get your finances back on track.
To make the most of a balance transfer card, it's important to pay off your balance during the introductory period, when the card is interest-free. Otherwise, you'll be charged a new, higher interest rate on the remaining balance. There may also be fees associated with balance transfers, so be sure to read the fine print before applying.
If you're not able to get a balance transfer card, you may also be able to refinance your debt with a personal loan. Personal loan rates are generally lower than credit card rates, but they have been increasing recently.
2. Pick a repayment strategy
There are two ways you could approach repayment: prioritize the highest-interest debt or pay off your debt from smallest to largest balance. Those strategies are known as the avalanche method and the snowball method, respectively. Using either can help consumers pay off debt as much as 100 months sooner, according to a separate analysis by LendingTree.
The avalanche method has you list your debts from highest to lowest by interest rate. That way, you start paying off the debts that rack up the most in interest first. The snowball method prioritizes your smallest debts first, regardless of interest rate, to help gain momentum as the debts are paid off.
To pay off your debts faster, you should make the minimum payments on all your debts, then use any extra money to pay down one debt at a time. It doesn't matter which method you choose - the 'snowball' or the 'avalanche' method - as long as you stick with it. What matters most is finding the strategy that will keep you motivated and on track.
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