Tips for Managing Credit Card Debt
Ohioans may fair better than the average American when it comes to credit card debt.
The most recent ValuePenguin data showed the average Ohio household holds just $5,446 in credit card debt. That’s the least of any state, while the typical household in Alaska carries the most credit card debt at an average of $13,048.
While credit card debt varies widely by state and region, it’s clear that there is a crisis in America with debt approaching $14 trillion. Credit cards are a big contributor, making up over a quarter of that amount. According to Debt.org, more than 189 million Americans have credit cards. An average household has at least four cards, carrying roughly $8,400 in credit card debt.
Experian reports that credit card debt is the second-fastest-growing debt behind personal loans and has been on a steady climb since 2015. Interest rates seem to be on the decline, with CreditCards.com stating the average credit card interest rate for new cards is currently 17.3%, down three quarters of a percentage point since the Federal Reserve cut rates in fall of 2019. But the annual percentage rate (APR) is still at a near record high – up from 16.8% in 2018.
Credit cards certainly have their advantages if used responsibly, especially if you’re able to pay off the balance in full every month by the due date. Credit Karma reports that credit unions typically offer lower interest rates, as well as competitive rewards and membership benefits. If you do find yourself struggling with credit card debt, you’re not alone. Your local credit union may be able to help you get back on top of your finances.
Credit unions are not-for-profit financial institutions owned and democratically-controlled by their members. Built on the philosophy of “people helping people,” their focus is on better serving their members with great financial benefits, like making life more affordable by dealing with credit card debt.
Tips for dealing with credit card debt
- Assess your financial situation. Come up with a list of everything you owe, including monthly bills, credit card balances and the annual percentage rate (APR) for each card. Then, compare expenses with income.
- Prioritize your spending. Before tackling credit card debt, be sure to cover the basics first, such as food, housing and clothing. Next, pay the minimum amount on all secured debts, like your home and car loans. Then, start working on paying down credit card debt with useful tools like the Credit Karma Debt Repayment Calculator, followed by student loans. Try to use cash or debit cards only while paying down debt. Above all else, pay at least the minimum balance on all outstanding debt to avoid hefty late fees.
- Establish a budget. Once your debts have been prioritized, it’s important to come up with a budget to track spending and minimize credit card debt. Use online tools like YNAB (You Need a Budget) to get started. Try to adhere strictly to your newly established budget.
- Secure a better rate. Negotiate a lower interest rate on your credit cards. According to CreditCards.com, sometimes all it takes is a simple phone call to (politely) request a better rate. Shaving off even a percent or two could save you hundreds of dollars while repaying your debt.
- Decide on a strategy. When paying down credit card debt, it’s important to settle on an action plan. There are two main ways to do this. One is to focus on paying down the card with the highest interest rate first, while making minimum payments on the other cards. This is the fastest way to decrease credit card debt, eventually freeing up more cash to pay toward the lower interest rate cards and creating a snowball effect. The other strategy is to pay the lowest balance first, while paying minimums on the others. Though not as cost-effective, this is the fastest way to get rid of debt on a single card.
- Stay focused by creating concrete goals and staying motivated. Keep your eye on the prize! Perhaps getting rid of credit card debt will afford you a down payment on a house, new car or dream vacation. CreditCards.com suggests writing your goals down and keeping them in your wallet or purse. When tempted to overspend, take a peek at them for a big picture reminder.