Americans are increasingly using credit cards as a primary method of borrowing money. Recent studies report that the average household with credit card debt owes almost $16,000! Credit cards often come with a much higher interest rate than other types of loans, making our reliance on them an expensive habit.
In fact, CNBC found that the average household with card debt pays a total of $1,292 in credit card interest alone each year. How can you get ahead?
Know your habits.
If you haven’t already done so, start tracking your spending and look for “extra” areas where you can cut back - like coffee, shopping, movies out, or even the cable. Determine a realistic amount that you can apply to your credit card debt each month.
MoneySync, from Washington Federal, Is a good tool to help. It’s available in desktop or via app and it incorporates all your spending from all your accounts – regardless of where you bank or which card you use. It’s free to sign up and MoneySync will even automatically categorize the spending for you and help you create custom budgets.
Use cash before credit.
Credit cards can be a great way to improve your credit score and earn some extra rewards, like travel miles or cash back, but if you’ve struggled managing credit cards in the past, then stick to a cash or debit-card only strategy for a year or so. You’ll likely be amazed at how much you save and how much easier it is to stay within budget.
Say “no” to store-branded cards.
They may sound like a great way to save, but the low introductory rate typically expires quickly and you’re more likely to forget about the store cards.
This can be key if you have several cards with varying interest rates. Here’s how it works: After you’ve determined how much money you can pay towards your debt each month, start applying that amount every month to the card with the highest interest rate. Continue to pay the same amount even as your minimum payment declines. After you’ve paid off one card, move to the card with the next highest rate.
Start with the snowball.
If you’ve got multiple cards with similar interest rates, then this is for you. Experts suggest that paying off a card completely, even if the balance is low, gives people a sense of satisfaction, accomplishment and motivation to continue to pay off debt. Take the amount that you determined you’re spending each month to pay down the debt, and start applying it to the card with the lowest balance. After that card’s paid off, move to the next lowest balance.
Balance transfer with caution.
Many credit card companies will offer a 0% rate if you transfer an existing card’s balance to them. While this can be a good option for those who meet the tough qualifying criteria, it’s also a dangerous game to play if you’ve struggled to conquer credit card debt in the past.
Ask for help.
Sometimes a household’s credit card debt is more than they can handle without some help. Regardless of the reason - medical bills, loss of a job, death of a loved one - if you know you cannot meet your minimum payment, contact your credit card provider as soon as possible. Ignoring due dates and missed phone calls will not help. Some providers offer hardship payment plans to help get consumers get back on track.
There are government-approved agencies and nonprofits that can also help consumers conquer debt. Check out the Federal Trade Commission’s Consumer Information page about the topic and for a list of verified groups that can help.
Remember to do your research before you work with an organization; many debt settlement “companies” are nothing more than con artists who promise to negotiate and take away your debt in exchange for payment – unfortunately all too often the lessening or wiping away of the consumer’s debt never materializes.