According to NerdWallet, American households have an average of $16,748. The average credit card interest rate is 15.07% but it could be as high as 20+% depending on your creditworthiness.
Needless to say, many Americans are burdened by credit card debt and it’s hard to get out for good due to the high interest rates most credit cards have along with the temptation to spend more than you earn.
Credit card debt is one of those situations that you don’t want to be in forever because it can drain your finances seeing as how the average American household spends $1,300 per year paying interest on their credit card debt.
If you’re ready to be free from your credit card debt so you can keep more money in your pocket and accomplish your other financial goals, these tips will help you pay off your debt once and for all.
Know Your Numbers
First, you need to know where you stand and look at your numbers. It’s interesting that many adults with credit card debt aren’t sure how much they even owe or don’t know their interest rate.
If you don’t know these important numbers, you won’t be able to effectively pay off your debt. Learning your numbers may shock you at first, but it can motivate you to take action and start paying off your debt.
Stop Using Your Card(s)
Once you know your numbers, you’ll be able to see how much money you’re paying interest each month on your credit card debt. That should motivate you to put your credit cards down and refrain from using them until you’ve paid your balance off.
You can’t make progress in terms of paying off your debt if you are still spending money on your credit cards because it will basically defeat the purpose.
Instead, stick to using cash for the time being so you’ll know you can afford what you’re spending money on.
You can ask someone like a family member you trust or your significant other to hold your credit cards or hide them from you so you don’t spend any more money on them if you don’t trust that you’ll have the willpower to do this on your own.
Treat Your Payment Like a Bill and Make Extra Payments
You want to make sure you’re making at least the minimum payment each month on your credit card to avoid being charged a late fee but depending on how high your balance is, it may take a super long time to pay off the entire thing using this approach.
It’s best to set your minimum monthly payment on auto-pay and make 1-2 extra payments each month to get the balance down. To come up with this money, you can cut out or reduce an expense, work extra hours at your job, or earn some extra money on the side.
Be sure to prioritize your credit card debt payoff and set clear monthly goals for much you want to put toward the balance.
Ask to Waive the Annual Fee
If your credit cards have high annual fees, that could deter you from being able to pay off your balance. Some credit card companies will waive the annual fee for a year if you ask.
This isn’t always guaranteed but it’s worth a try. You can call the company and explain how you’re trying to pay your balance off and request that the annual fee is waived if you have one coming up.
Your credit card issuer may be willing to work with you because they actually don’t want to send your balance to collections and deal with a debt settlement because this means they may receive less money from you instead of the full amount.
Consider Getting a Balance Transfer
If the interest rate is high on your credit card, you may want to try a balance transfer which could help you pay off the card quicker. With a balance transfer, you take your current credit card balance and transfer it to a new credit card that provides a 0% interest rate offer for a limited time.
Let’s say you currently have one credit card at a 21% APR and another credit card is offering you a balance transfer with a 0% APR for 20 months. That means, if you transfer your balance to the new card, you can pay off your credit card debt interest-free for 20 months and save quite a bit of money.
Credit card companies offer balance transfers to get your business so you can open a credit card with them. It’s important to activate your balance transfer within 60 days of obtaining the new card or the offer may not be available anymore.
Also focus primarily on paying off your credit card debt after getting a balance transfer and avoid trying to use the money to make additional purchases.
Some balance transfer offers only provide you with a 0% APR for the transfer itself and a normal APR for new purchases so if you start spending extra money with the new card, you could have to pay interest on it and get into more debt.
Change Your Spending Habits
You may need to create a new budget to help you pay off your credit card debt. A budget is basically a spending plan that tells your money exactly where to go.
In order to stay out of credit card debt, you’ll need to change your spending habits and creating a new and realistic budget can help you become more conscious of what you’re spending and when.
It’s important to get into the habit of spending less than you earn so you can avoid debt. Realize that your credit cards are a tool that you can use to build your credit score and not just free money.
Generally speaking, you never want to max your credit card out and should spend no more than 30% of your total utilization per month. That means, if your credit limit is $1,000, you shouldn’t spend more than $300 per month on your credit card. If you wish to spend more and can afford it, you can always ask for a credit limit increase.
Also, be sure to pay your bill off in full each month to avoid paying interest. Doing these two things will help you increase your credit score.
Credit cards can be a great tool when used wisely, but they make it very easy to get into debt which is why you have to stick to your budget and control your spending habits.
Have you ever had credit card debt? What strategies have helped you pay down any debt that you’ve had before?
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