Reducing Your Credit Card Debt
During the pandemic, Americans did a great job of reducing their overall debt, especially when it came to credit cards. But now that life is back to normal, some ugly financial habits have once again reared their head.
Total credit card debt in the United States in the second quarter of 2022 rose 14% versus year-ago levels. According to a WalletHub study, the average credit card debt per household now stands at $8,942. This debt is financially crippling some families and adding tremendous stress. Here are some ways to lower your credit card debt.
Pay More than the Minimum Payments
Paying just the minimum amount each month on any type of debt, especially high-interest debt, is never a good idea. Interest on credit cards is extremely high when compared to home or car loans because credit card debt is a short-term loan that is unsecured. The average credit card debt is now almost 19%, so it is crucial to pay more than the minimum amount each month. You will likely save hundreds of dollars over the life of the debt just by paying more than the minimum. Evaluate what you can afford to pay toward your credit card each month, and you’ll start to see noticeable declines in the amount owed.
Ask for a Lower Interest Rate
A surprising number of cardholders can secure a lower APR just by asking for one. Ideally, you should post several months of positive payments on your account before requesting a lower interest rate. Once you show the card company that you are managing your debt, they may grant your request for a reduced APR.
Make Sacrifices to Free Up More Income
Do you have more in monthly payments than you have in income? Are you paying more in interest than your principal? If so, it may be time to make some tough sacrifices. Get rid of your streaming services for a few months. Make meals at home, possibly in bulk, instead of eating out. Commit to a spending freeze one week each month. Try to negotiate a lower monthly charge on your cable or internet bill. Put the extra money you now have toward your credit card debt, and enjoy the stress relief that follows.
Use a Cash Back Card
If you need to keep making transactions with a credit card, make sure you are using a cash back card. Depending on the card you use, you can earn anywhere from 1% to 5% on every transaction, just for using that credit card. It’s almost like free money for the cardholder. Take all the cash back rewards you earn and apply that money to your credit card balance. Every little bit helps when you are trying to pay down your balance.
Consolidate Your Credit Card Debt
Consolidating to a low-interest loan or balance transfer credit card could make debt payment more feasible. With a balance transfer card, you transfer the balance from one credit card to another. The card may have a lower interest rate than your existing card, reducing the fees you incur each month. There will likely be a balance transfer fee on the card, which impacts how much money you can save with this option.
Pay Your Credit Card Bills on Time Each Month
You may not be reducing your credit card debt, but you will be preventing late fees and a higher interest rate if you make each of your monthly payments on time. Late payment fees add unnecessary expenses on top of your accruing interest. And issuers can sometimes significantly increase your interest rate due to one late payment.
Make Credit Card Payments Every Two Weeks
By making a payment to your issuer every two weeks instead of once a month, you squeeze an entire extra payment into the year. There are 52 weeks in a year, resulting in 26 half-payments. That equates to 13 full payments, rather than the standard 12 monthly payments for the year. If you get paid every two weeks, dedicate a portion of each paycheck to your credit card.
Cancel Subscriptions You No Longer Need
Are you still paying $5 a month for an app or streaming service you no longer use? What about a service that lured you in with a free month or two, but is now charging you a monthly fee? Those tiny subscription payments can add up to a lot of wasted money each year. That is money that could be going to pay off your credit card debt. Carefully review all of your monthly transactions, and eliminate the ones you do not need.