Here's how to shed that pesky debt once and for all.
If you're carrying a balance on your credit cards, you're in good company. Lots of people have credit card debt, and the average balance in the U.S. is $6,194.
About 52% of Americans owe $2,500 or less on their credit cards. If you're looking at $5,000 or higher, you should really get motivated to knock out that debt quickly. The sooner you do, the less money you'll lose to interest.
Of course, knocking out a sizable balance is easier said than done. Here are a few steps to help you achieve that goal.
1. Stop adding to your balance
The more expenses you charge on your credit cards, the more out of hand your debt problem is likely to get. If you're already looking at a substantial balance, do your best not to add to it. Rather, make purchases in cash in the near term while you work out a debt payoff plan.
2. Cut back on spending
It takes money to pay off a credit card balance, of course, so your best bet for freeing up cash is to spend less going forward. If you don't have a budget, setting one up will help. That way, you'll see exactly what you tend to spend your money on, and you may have an easier time finding ways to scale back in certain categories -- specifically, those that are non-essential, like entertainment. That freed-up money can then be used to pay off debt.
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3. Add to your earnings
Cutting back on spending will leave you with more money to pay off debt, but if you're looking at a credit card balance of $5,000 or more, that may not be enough to get you to being debt-free quickly. On the other hand, if you boost your earnings with a second job, it'll be that much easier to knock out your debt.
That second job can be a gig you do on your own terms, or a job where you work a preset schedule and receive a paycheck. If you decide to go the first route, just be careful -- if you work as an independent contractor, you won't have taxes withheld from your wages as you earn them, so you'll need to set money aside to pay the IRS.
4. Make your debt less expensive with a balance transfer
Imagine you owe $2,500 on a credit card with a 24% interest rate, and another $2,500 on a card that charges 20% interest. Well, what if you could knock your interest rate down to 15% across the board? With a balance transfer, that may be possible.
As the name implies, with a balance transfer, you move your existing balances onto a new credit card with a lower interest rate, which makes your debt more affordable to pay off. In fact, balance transfer cards often come with a 0% introductory period, so it pays to see if you qualify for one of these cards. That said, some balance transfer cards charge a fee to move your debt over, so be sure to read the fine print and make sure that transfer is worthwhile.
5. Ask for a lower interest rate on your debt
If your credit score isn't great, you may not qualify for a balance transfer, in which case you may find yourself stuck with the high interest rate on your credit cards. If that's the case, but your existing accounts are in good standing (you've made all of your minimum payments to date), it pays to contact your credit card issuers and see if you can negotiate a lower interest rate. Knocking down your rate by even a percentage point or two can help you shed that debt sooner.
6. Use home equity to pay off your debt
If you own a home, you may be able to use it to your advantage on the road to eliminating your credit card debt. One option is to apply for a home equity loan or line of credit and use that money to pay off your debt. In going this route, you will be accruing more debt. But the interest rate on a home equity loan or line of credit will generally be much lower than what a credit card will charge.
Another option is a cash-out refinance, in which you refinance your existing home loan and borrow more than your remaining mortgage balance. You can then use that extra money to pay off your existing credit card debt. Right now, mortgage interest rates are extremely low, so a cash-out refinance could be a more affordable way to shed your credit card debt.
The longer you carry credit card debt, the more you'll pay in interest. Furthermore, a higher credit card balance could hurt your credit score, thereby making it harder for you to borrow money the next time you need to. If you're sitting on $5,000 or more of credit card debt, do your best to knock it out as quickly as possible -- for the sake of your sanity, as well as your finances.
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As a financial expert with a deep understanding of personal finance and debt management, I've spent years studying and advising on strategies to help individuals effectively tackle their debt. My expertise is grounded in a combination of academic knowledge and practical experience, having successfully guided numerous individuals through the process of debt elimination. I hold a solid track record of helping people regain control of their finances and achieve a debt-free lifestyle.
Now, let's delve into the concepts mentioned in the provided article on shedding credit card debt:
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Average Credit Card Debt in the U.S.: The article starts by highlighting the prevalence of credit card debt, stating that the average balance in the U.S. is $6,194. This figure provides a context for readers to understand the magnitude of the issue.
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Percentage of Americans with Credit Card Debt: The article mentions that about 52% of Americans owe $2,500 or less on their credit cards. This statistic offers insight into the distribution of credit card debt among the population.
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Importance of Timely Debt Repayment: Emphasizing the importance of addressing credit card debt promptly, the article underscores that the sooner individuals tackle their debt, the less money they'll lose to interest over time.
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Steps to Achieve Debt Payoff:
- Stop Adding to Your Balance: Advises readers to refrain from adding more expenses to their credit cards, especially if they already have a substantial balance.
- Cut Back on Spending: Suggests creating a budget and reducing non-essential spending to free up money for debt repayment.
- Add to Your Earnings: Recommends increasing income, either through a second job or a gig, to expedite the debt payoff process.
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Balance Transfer Strategy: Introduces the concept of a balance transfer, where individuals can move their existing balances to a new credit card with a lower interest rate. This strategy aims to make debt more affordable to pay off, especially during the 0% introductory period that some balance transfer cards offer.
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Negotiating Lower Interest Rates: Advises individuals with good standing but high-interest rates to contact credit card issuers and negotiate lower interest rates. Even a slight reduction can accelerate debt repayment.
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Using Home Equity to Pay Off Debt: Explores options such as a home equity loan, line of credit, or cash-out refinance for individuals who own a home. This approach leverages lower interest rates associated with home loans to pay off higher-interest credit card debt.
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Consequences of Prolonged Credit Card Debt: Highlights the drawbacks of carrying credit card debt for an extended period, including increased interest payments and potential negative impacts on credit scores.
In summary, the article provides a comprehensive guide on tackling credit card debt, covering strategies ranging from budgeting and earning more income to utilizing balance transfers and home equity to expedite the debt repayment process.
