Tips for Managing Credit Card Debt

The average U.S. household carries close to $16,000 in credit card debt, which continues to add interest and grow over time. Adding to the burden, the national average credit card interest rate is 16.14%.

With this much debt, families may find buying a home, putting money away in a college fund, saving for emergencies, saving for retirement, or balancing everyday living expenses to be difficult.

For many, this debt can be overwhelming and difficult to overcome, but by approaching the situation with a change in spending habits, a commitment to saving, and a debt payoff strategy, you can manage your credit card debt.

Spending Habits

In many cases, poor spending habits lead to credit card debt. To pay off credit card debt and keep it from happening in the future, you need to commit to changes in mindset and spending habits that set you up for success, such as the following:

Create a Budget

A budget is one of the easiest ways to get your finances back on track. To start, list your monthly and daily expenses for a few weeks to see where your money goes. Once you have these numbers figured out, separate the necessities, such as your housing and utilities payments, from the nonessential spending. Then, readjust your budget to ensure you’re living within your means.

Once the budget is established, commit to it. If you find yourself straying, or if your circumstances change, reevaluate your budget and look for ways to adjust it to get closer to your goals.

Cut Back on Luxuries

If you want to be free from debt, some sacrifice may be required. Whether you’re giving up dining out, skipping the daily specialty coffee, or cutting back on nonessential clothing, evaluate the unnecessary spending and put that money toward paying off debts.

Resist Temptation

Impulse spending is a big problem for many people, so if you’re prone to window shopping or online shopping that can turn into an impulse purchase, try to redirect your attention to something more productive. Try exercising, reading a book, listening to music, or other free activities that keep you from unnecessary shopping.

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Saving Habits

After you’ve committed to more responsible spending habits, saving all the extra money is the next step. This effort will not only help you pay off your debt sooner, but it will also give you the peace of mind of knowing you’re prepared for an unexpected expense or a financial emergency.

Cover the Essentials

When you’re trying to recover from credit card debt, even a small issue, such as a car repair or broken appliance, can be enough to derail your efforts. Your first saving goal should be accumulating an emergency fund of three to six months of basic living expenses. It may take some time, but once you have this fund, you’ll be prepared for any unexpected expenses that arise.

Be Responsible With Windfalls

You can be tempted to spend any extra money you have, such as a tax refund, lottery winning, work bonus, monetary gift, or other one-time lump sum. Instead of wasting that money, put it toward savings or your existing credit card debt.

Beware of Discounts and False Savings

When you’re trying to relieve yourself of credit card debt, many false savings, such as balance transfer credit cards with introductory rates or discounts, can tempt you. Although these options may seem like the answer, they may only get you deeper into debt in the long run. In addition, your credit score could drop from a credit inquiry, which doesn’t help your future interest rates.

Debt Payoff Strategy

Now that spending and saving are sorted out, you need to devise a plan to pay off your debt. It may take a while, depending on how much debt you have, but it will be worth the sacrifice for lower interest rates, better offers, and financial security.

Pay More Than the Minimum

The minimum payment your credit card requires is only enough to keep you from compounding your debt and covers the interest. When you pay only the minimum payment each month, your credit card company keeps earning interest, while you barely scratch the surface of your principal debt. When possible, pay over the minimum payment to ensure you’re actually paying off your debt rather than keeping it where it is.

You can take two approaches to pay off multiple cards:

• Pay the lowest balance first. Many people choose to tackle the highest debt first, but that approach can become disheartening quickly. After saving and putting all your extra money toward the high balance and barely seeing it move, you can feel like you’re never going to get anywhere with your debt. When you pay off the lowest balance first, you not only free yourself from the extra payment, but you also get the sense of accomplishment and relief that will keep you on track. From there, you can take on the next highest balance and work your way toward having one payment on the largest debt.
• Pay the highest interest first. You can also save money on interest by focusing your payoff efforts on the credit card with the highest interest rate. Note that your other cards will accumulate interest while you’re paying this debt off, but since you’re paying interest either way, freeing yourself from the highest interest rate will be worth the effort.

Always Pay on Time

No matter which approach you use to pay off your credit cards, be sure you’re not doing so at the expense of on-time payments for your other credit cards. Late payments can damage your credit score, so pay at least the minimum payment on time for your other cards while you’re paying off the highest balance or highest interest card.

Get Help With Debt Relief

If you’re struggling to manage your credit card debt, let us help. At Solvable, we’ll help you understand your debt with personalized education and provide you with access to debt relief providers so that you can get on the road to a debt-free life. Contact us today to learn how we can help.