Credit cards serve a number of important purposes: building credit, allowing people to pay off large purchases over time and covering emergency costs in a pinch. But the delay between when you charge something and when the bill comes due is a dangerous gap; it’s all too easy to get behind on payments, especially because life is unpredictable.
If you’re struggling with credit card debt, it may be comforting to take a step back and realize you’re not the only one. U.S. households with credit card debt carried an average of $16,061 in 2016. Debt is increasing disproportionately to income, which also leaves some consumers in the lurch.
Credit card debt can quickly spiral out of control, due in part to the fact that it’s revolving. This means people only technically have to make minimum payments on their balance to keep using their cards. Picture a revolving door. At a low speed, it’s easy to operate. At a high speed, it becomes difficult to remove yourself from the situation.
When it’s time to address your debt, consider these five tactics for cutting credit card debt.
Surpass Balance Minimums
It’s tempting to fall back on paying the minimum balance, which can be a low fixed amount (like $25) or a small percentage of your total balance (like 2 percent). This strategy does stave off late fees for the time being. However, it does nothing to actually reduce your debt. And, due to the interest rates usually associated with credit cards, your debt will keep growing in the background as you keep buying yourself time.
It’s prudent to do whatever you can to surpass your minimums each month. This is the only way you’ll be able to make a real dent in your debt. If there are any areas in which you can make cuts, put those savings toward your credit card bill.
Reduce Your Principal Debt
Sometimes budgeting isn’t enough. If you’re facing significant debt and daily collection calls, exploring options like credit card debt settlement may be a better solution. The risk is that you divert the money you’d usually be paying toward your growing debt to a special bank account. The potential reward is that creditors are often willing to negotiate and settle upon a lower figure that you then pay in one lump sum using the aforementioned account. Working with reputable negotiators can yield positive results here, so do your research before signing on with any certain program.
Prioritize One Card at a Time
Debt is an overwhelming state. When you’re getting multiple envelopes stuffed with late notices and phone calls from a host of creditors, it’s difficult to keep track of your progress. Part of staying motivated is seeing results. Prioritizing one debt at a time helps you stay focused and see results. Here’s a tip: Either pay your smallest debt first (while paying the minimum balance on your other cards) and work your way up or start with the highest interest rate first and work your way down.
Transfer Your Balance
High interest rates make getting out of debt that much trickier. That’s why, in certain cases, transferring your balance to a card with a lower interest rate can help. Ideally, you want to transfer debt to a card with a 0 percent APR. Keep in mind there is a fee for doing this, and there may be a promotional period after which the desirable APR climbs.
Don’t Close All Your Cards
It’s important to maintain a good debt utilization ratio, even as you pay off your debts. Keeping your cards open and using them sparingly is one way to do so. Closing some cards, on the other hand, may help you avoid racking up more debt. You may be tempted to close out each card as you pay off the balance but be sure to weigh the pros and cons before doing so. This will set you up for a healthy financial future.
Consider these five tactics for cutting credit card debt when you’re ready to take control.