Tips to Fix Your Out-of-Control Credit Card Debt

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Credit Card Debt

Most people in the US today carry the burden of credit card debt. According to Experian, Americans have an average credit card debt of more than $4,000. When you look at it, that’s quite a scary figure. Some people can sleep at night with such a significant level of average credit card debt. However, others lie awake at night, worrying about their creditors. If you’re one of these people and would like to know what you can do about your credit card debt, here are some tips to help you manage your debt better. 

Set Some Achievable Goals

If you want to pay off some of your high-interest credit cards, set yourself some achievable goals. If you have other kinds of debt (for example, an overdraft, non-revolving credit, student loan, personal loan, or auto loan), include them in your repayment plan. 

Credit cards are easy to use, which means running up debt can happen very quickly. When it comes to getting back on track, however, it’s going to take time. A certain amount of self-discipline is also required. Set yourself a series of SMART goals, and you’ll find them much more manageable. 

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Be SMARTer

Here are some financial guidelines for you to consider:

  • Specific – Don’t be generic or vague. Instead, be as accurate as possible. Rather than setting a goal to pay off all credit card debt or satisfy all your creditors, set yourself a goal to pay off a specific balance. “Pay off my $4,500 Choice card balance” is a much SMARTer goal. 
  • Measurable – You need to be able to measure your progress, so choose a concrete number.
  • Attainable – Any goals you set have to be within your reach. A goal should be challenging but shouldn’t be unattainable.  
  • Realistic – If you’re aiming to pay off your Choice card balance, for example, the payments you make should be affordable. If your budget is tight and you know you’re going to struggle, scale back your monthly payments. 
  • Time-Bound – Give yourself a target to aim for, and your goal is likely to feel more real. With a timeframe, you’ll also be able to focus on getting there. Fail to set a deadline, and other things might get in the way of you achieving your goals.   

Stop Using Your Credit Cards

If you keep your credit cards in your wallet, is your will strong enough to stop you using them? Possibly not, which is why you need to put them away somewhere until you’ve paid off all your debt. Do you have a partner, friend, or family member you can give them to for safekeeping? 

You can’t close your accounts while there’s still an outstanding balance. Even if you could, you’re better off keeping them open because it’s good for your credit report. 

When you’re not using your credit cards, you’ll have to pay cash for your purchases. You’ll find yourself thinking more about each purchase you make. You’ll also find it easier to separate your wants from your needs. 

Prioritize Your Debts

Are credit cards your only debt, or do you owe money to other creditors? Make a list of them all, and you’ll know where you stand. Include details of the outstanding balances, how much you pay every month, any late fees, the interest rate, and any other charges you pay. 

Once you’ve made a list, put them in order of priority. Some loan payments are going to be more critical than others. For example, your mortgage and auto loan payments might be more important. 

Everyone’s priorities are different, so it’s up to you to decide. Do you, for example, want to pay off your loans with the highest interest? Is paying off your short-term loans more of a priority? 

Cut Your Expenditure

Before you start this exercise, track your spending for at least a couple of weeks. Make a note of every dime you spend, whether it’s a bottle of water on the way to work, Dunkin Donuts for lunch, or the money you put in the parking meter because you didn’t want to walk. It might surprise you to learn what you’re spending your money on.

Once you’ve analyzed your spending, you’ll find it easier to make some changes. Look for opportunities to cut your costs because it’ll free up more money for your debt payments. Let’s give you a few suggestions to get you started:

  • Cycle or walk to work
  • Shop in thrift stores
  • Ditch the name brands for unbranded products
  • Make your own lunch for work
  • Find a better cell phone deal
  • Start a loose change jar
  • Make gifts rather than buying them
  • Use energy-saving light bulbs

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Create a Monthly Spending Plan

Build a monthly budget, and you’ll find it easier to live within your means. Start by making a list of all your regular expenses. Break it down into two basic categories: fixed costs and flexible expenses. Fixed costs include payments for your rent or mortgage, insurance, and debt. Flexible expenses include entertainment. This category often includes things you want but don’t necessarily need.

Part of this step should include deciding on a budget plan. A popular plan at the moment is the 50/30/20 budget plan. Out of your total after-tax income, you spend 50% on necessities, 30% on wants, and 20% on savings and debt repayment. 

Here are a couple more budget plans you could follow:

  • Saving First Budget – with this budget, saving is your priority
  • The Zero-Based Budget – every month, you portion your income out across different budget categories until there’s nothing left

Whatever plan you choose, the ultimate goal is to stick to your budget while you pay down your debts as quickly as possible. 

Credit Card Debt

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Snowball vs. Avalanche Method

If you want to pay down your credit card debt, it might help if you’ve got a strategy. There are two popular strategies you might want to choose: The Debt Snowball and The Debt Avalanche Strategy. Let’s introduce them and leave you to decide whether one is worth adopting. 

The Debt Avalanche Strategy

If you want to pay off your credit card debt as quickly as possible, this is the strategy for you. It’s also the best way to save on your interest payments. The principal is simple. Your credit card payoff strategy starts with the debts that have the highest interest rate. 

If you want to work out repayment amounts, you can use a credit card payoff calculator. There are plenty of them available online. 

Refer to your list made previously and put your debts in order of the interest rate. Start with the highest rate and work down to the lowest. Aim to keep making minimum payments on your credit card balance. 

At the same time, channel any additional money you have every month and pay extra on the loan with the highest interest rate. As you pay off each loan, cross it off the list and move on to the next one. Once you’ve paid off one loan, move on to any additional credit card payments.

A debt avalanche strategy works for some people because you waste less money on interest. The focus of this strategy is the interest rates, rather than anything else. 

Who is Best Suited for the Debt Avalanche?

The debt avalanche strategy is perfect if you want to minimize the cost of your credit card debt. If you don’t need to receive positive reinforcement, it’s also going to work for you. Those of you motivated by facts and figures might also find this strategy appealing.

While there’s no denying the debt avalanche is an excellent strategy, it doesn’t work for everyone. Don’t worry, however, because there is another option. 

The Debt Snowball Strategy

The debt snowball strategy is a better option if you anticipate the need for extra motivation. It provides regular small victories along your road to debt freedom. 

How does it work? You must remember your childhood years, rolling snowballs down a hill (if you’re from a place that gets snow). As the snowball traveled along, it picked up more and more snow, gradually getting bigger and bigger.

With the debt snowball strategy of payments, you start by paying off your smallest debts. You then move on to the next-smallest debt and so on. All the while, you keep making the minimum monthly payment for all your outstanding debt.

It’s a very popular method because there are lots of quick wins along the way. These add to your sense of accomplishment, spur you on, and help you stay motivated.

The debt snowball strategy is excellent if you need positive reinforcement to keep you focused. If you’ve got high-interest debts that aren’t spiraling out of control, you can also take advantage of this strategy.

Whether you choose the debt snowball strategy or debt avalanche method of eliminating your credit card debt, it is a personal choice. You know yourself better than anyone, so only you can decide which is more likely to be successful.   

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Consider a Debt Consolidation Loan

A debt consolidation loan is a way of borrowing money from a lender that you then use to pay off your other debts. You should consider a debt consolidation loan if you’re having a hard time covering the minimum monthly payments on your line of credit, unsecured debt, overdraft, or credit card accounts. 

It also makes sense to consider consolidating your credit card debt with a personal loan when you’re paying high-interest rates. It might be possible to negotiate a personal loan with a more favorable interest rate to help with your credit card consolidation.  

One factor you have to take into account is your credit score. If it’s not very good, you’re unlikely to get a low-interest rate, even if your credit card consolidation loan application is accepted.

Debt consolidation is a good idea in the following four scenarios:

  1. Your credit is good enough to qualify you for a low-interest debt consolidation loan
  2. You’re able to cover your debt payments consistently
  3. You’ve got a plan in place to prevent getting into debt again
  4. Your total debt is less than 40% of your gross income 

A bonus of a debt relief loan is that it helps your credit score; provided, of course, you make your payments on time, and you reduce your credit card balances as a result of the consolidation. 

Balance Transfer Credit Cards

Transferring your credit card balances with the help of balance transfer cards is another debt relief option.  

A balance transfer credit card helps because you’re able to pay down your debt faster by transferring an existing balance to a new card. The new card will have a lower interest rate, thereby saving you money. If you’re lucky, you might be able to find a balance transfer credit card company offering a 0% interest rate. 

As you might expect, there are both pros and cons to using a balance transfer credit card for debt relief.

  • The pros – You simplify your debt; interest rates are lower; you get better rewards; you get a lower APR for purchases. 
  • The cons – You may have to pay balance transfer fees; you have to pay off all your debt by the end of the promotional period or risk getting into more debt; promotional periods come to an end all too quickly, and you then face a high regular APR. 

There is a wide range of credit card providers currently offering balance transfer credit cards. Choosing the right one can be a challenge. Compare the following if you want to select the best one:

Introductory Rate  

Many issuers offer a low or 0% interest rate for balance transfers. This is a desirable offer because it means your monthly finance charges will be reduced or eliminated. With fewer finance charges, you’re in a better position to pay off your credit card balance. All good things, however, come to an end, and the introductory period is bound to end at some point.  

Introductory Period 

It’s written down in law that introductory periods have to be for a minimum of six months. There are companies, however, that offer 12, 18, or even 21 months. It’s better for you if the introductory period is as long as possible because this gives you extra time to pay off your balance without paying any interest.  

Regular Balance Transfer APR (Annual Percentage Rate)  

This is the interest rate that becomes effective when the introductory period ends. Look for the lowest regular APR possible. 

Purchases APR 

Some credit card issuers offer the same introductory rate for balance transfers and purchases. Be careful, however, that this doesn’t tempt you to rack up additional charges on your card. 

Balance Transfer Fee 

In general, you can expect to pay between 3% and 5% of the balance you transfer. There are credit card issuers that charge no balance transfer fee at all. These are definitely worth considering. 

Approval Criteria 

Just because you’ve received an offer of a 0% balance transfer credit card, it doesn’t mean you’ll automatically be accepted. You’ll have to meet specific criteria to qualify. A card issuer looks closely at your credit history, income, and several other factors.  

If you like the idea of a balance transfer credit card, here are some issuers you might want to consider.

Credit Card Debt

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Discover It Balance Transfer

With a Discover It Balance Transfer credit card, you get to enjoy 0% interest on your balance transfer for the first 18 months. After that, the interest rate climbs to between 13.74% and 24.74% variable. 

For every quarter your card is activated, you also benefit from 5% cashback on a selection of retailers. The maximum amount is $1,500. For all other purchases, you earn 1% cashback.

Another excellent bonus is the fact that Discover will match any cash back you earn in the first year. 

To be eligible, you need a good credit score. 

For purchases, the intro APR is 0% for six months. There is no annual fee. A balance transfer fee of 3% on your initial balance transfer and 5% on future balance transfers applies. 

Capital One Quicksilver Cash Rewards Credit Card

With a Capital One Quicksilver Cash Rewards credit card, you benefit from a generous cashback offer. On top of that, there’s a 0% intro APR on purchases and balance transfers. This 0% offer lasts for 15 months. After this period, the interest rate reverts to between 15.74% and 25.74% variable, depending on your circumstances.

The balance transfer fee is 3% of the amount transferred.  

The cashback offer is a $150 bonus you receive after spending $500 or more within the first three months. After this period, a cashback of 1.5% is offered. You can redeem your cash back at any time and for any amount. Your rewards have no expiration date and can be redeemed for cash, gift cards, or to cover a recent purchase.  

There’s no annual fee, and there are no foreign transaction fees. However, you do need a credit score of at least 700.  

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Chase Freedom

The Chase Freedom credit card is another card offering 0% intro APR on balance transfers and purchases. The offer lasts for 15 months, which should be enough time for you to make a dent in your outstanding balance. After this introductory period, the interest rate reverts to a regular APR of between 16.99% and 25.74% variable.

Spend $500 in the first three months, and you’ll receive a $200 sign-up bonus. Use your card at selected categories and merchants to enjoy 5% cash back on up to $1,500 of purchases every quarter.  

The Chase Freedom card is one of many credit cards offered by JP Morgan Chase & Co, but it’s the best if you want to use it for balance transfers. 

There is no annual fee, so you get to enjoy further savings.

Bank of America Credit Card

The Bank of America credit card is currently offering 0% introductory APR on balance transfers for 18 billing cycles. This rate applies to any balance transfers made in the first 60 days. 

Zero percent introductory APR is also offered on all purchases. This offer is also valid for 18 billing cycles. 

After the introductory period, the interest rate reverts to between 14.74% and 24.74% for both balance transfers and purchases.

A good to excellent credit score is required. 

The Bank of America charges no annual fees or penalty APRs. 

Wells Fargo Platinum Card

The introductory offer from Wells Fargo is 0% on balance transfers for 18 months. After this time, the interest rate reverts to a regular APR of between 17.24% and 26.74% variable. The balance transfer fee, however, is one of the highest at 5%. 

Other perks include:

  • Cell phone protection of up to $600, which provides coverage against damage or theft. You do, however, have to pay your phone bill with your card.
  • Access to FICO credit score
  • For any reported unauthorized transactions, there is zero liability protection. You do have to report such transactions promptly to qualify
  • No annual fee

Refinance Your Mortgage

If you own your own home, there is another option. Consolidating your credit card debt into your mortgage can be a solution, as long as you have sufficient equity in your home. If you decide you want to consolidate your debts into your mortgage, make sure you have a budget in place. As well as making your payments, ensure you have enough money to put aside for your savings.  

It’s effortless to get sucked into using your home as an ATM whenever you need a quick injection of cash. To do so, however, is not smart because you risk entering your retirement years with no assets or savings and a lot of debt.  

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Seek Expert Help

One final and crucial tip is not to be embarrassed or worried about seeking expert help. Wherever you live in the world, there are free or low-cost counseling services for people struggling to pay off credit card debt. 

In the US, you can get help with a debt settlement solution from credit unions, extension offices, religious organizations, and nonprofit credit counseling agencies. Always check that the consumer credit counseling service is accredited by either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). 

Organizations offering the services of a credit counselor will be able to help with a debt settlement program and a debt management plan. They’ll also be in a position to advise you on paying your credit card bills, your options for credit card debt relief, and working out your debt-to-income ratio. 

You also have the option of approaching debt settlement companies or exploring an emergency fund.    

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What About You?

We don’t like to think that any of our readers have found themselves in debt, but unfortunately, it’s all too common. If you have managed to turn your average credit card debt around, we’d appreciate hearing about your experiences. You might have found a debt settlement solution we hadn’t considered, in which case, many of our other readers could benefit too.

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