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How to Manage Credit Card Debt

February 21, 2024
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In 2023, credit card debt in the United States hit $1 trillion for the first time. Credit card debt is money borrowed without collateral backing. Credit cards are easily accessible and popular, however many people open up multiple lines of credit with different terms and credit limits, making it difficult to understand their credit card debt.

Not all debt is bad but credit card debt is more expensive than other loans, making understanding your credit card interest critical for your financial health. First, you have to know how much interest you’re paying on your debt. Interest is what credit card companies charge you for borrowing money. Look for a low APR (annual percentage rate) for a better interest rate.

We know there are all sorts of reasons that credit card debt can get out of hand. Your car breaks down and you need to get to work. You pay for the repair with a credit card even though the money is nowhere in your budget. Then it’s one thing after another, and pretty soon you’re paying 16% interest every month on debt you never planned on having. Credit card debt is nothing to be ashamed of. Fifty-five percent of Americans carry credit card balances from one month to the next.

Your finances don’t have to keep suffering, however. Read on to get tips for paying off credit card debt and a few actionable strategies to get started.

Assessing Your Credit Card Debt Situation

Before you start , you’ve got to know what you owe.

  1. Gather your credit card statements from all of your lines of credit. Next, add all the balances on your statements together to find out how much you owe in total.
  2. Note the interest rates on those credit cards.
  3. Identify the minimum payments on each card.
  4. Note the due dates of each credit card.

Now you have a goal. That number you got when adding all the credit cards together might be a scary one, but that’s why you’re here. DCU is going to help you throw back the curtain and shed some light on your credit card debt, making it fathomable for you to take it on!

How to Get Rid of Credit Card Debt: The Two Main Strategies

When deciding how to manage credit card debt, many consumers pick one of these two strategies. There are virtues to both. One is more motivational, while the other is all about paying less money.

  • Snowball Method: Paying Off Smaller Debts First
    • Sometimes you just need a win. When you use the snowball strategy, you tackle the smallest debts first. This way, you can watch as you pay off more balances completely. This helps you stay motivated to keep paying off your debts.
  • Avalanche Method: Tackling High-Interest Debts First
    • This method will ensure that you pay less interest by paying off the balances with the highest APR first.

Paying off credit card debt is personal. Trust yourself to choose the right strategy for you. But you don’t have to start your debt payment journey alone! Turn to tools such as DCU’s Balance program. Balance offers DCU members no-cost financial counseling and debt management assistance.

Consolidation and Refinancing Options

Debt consolidation is a way of getting all your debt onto one card so that you only have to pay one payment every month. While consolidation has done a lot of good for people in debt, there are cons.

Debt consolidation should only be done if your credit score allows you to open a line of credit with a lower interest rate than the rate on the original card. Debt consolidation is sometimes criticized for not addressing the root of the issue. When people only have one account to pay, they feel like they’re in less debt and spend accordingly.

If you think you can curb your spending and get a better interest rate than the rate on your current cards, consolidation might be right for you. Check out DCU’s loan consolidation calculator to help decide if consolidation is for you.

Those wanting to consolidate and refinance may want to look into a balance transfer card. DCU offers a low-interest card with a simple online transfer process. If you’re using the balance transfer tactic, you’ll want to pay your balance off before the end of the low-interest promotional period. Before committing to a card, be aware of transfer fees that can cost you three to five percent of the amount being transferred.

Creating a Realistic Budget

Creating a budget will help you know how much money you can set aside to pay off your balance every month. To make a budget, take a long look at your income and your expenses. Subtract your expenses from your income. After this, track your expenses for a month to see where your money is going. Once you’ve done this, you’re ready to make a budget. DCU can help you with budgeting with money-managing tools.

Once you’ve set your budget, you can trim expenses where appropriate and allocate the money you saved for debt repayment. This might require lifestyle adjustments. Examples to save include inviting friends over for scary movies every Friday instead of going out for a month, or spending a weekend making handmade gifts during the holiday season rather than buying presents for friends and loved ones. Explore your pantry and make your ingredients stretch rather than going grocery shopping midweek.

These decisions might seem like a sacrifice beforehand, but you may find that trimming your budget isn’t so painful once you get used to it. Once you notice your credit card balance shrinking, the relief will be worth it.

Seeking Professional Guidance

We all need help every once in a while. Credit unions such as DCU are often devoted to the fiscal wellness of their members. With this in mind, members of credit unions often benefit from free financial advisors to help them through confusing times. Credit unions can also offer credit counseling services to help members figure out how to get out of credit card debt.

It’s important to know that declaring bankruptcy is an absolute last resort. Not only does Chapter 7 bankruptcy sell off most of your assets including your house, car and your investments, but it will also devastate your credit score. Before considering bankruptcy, look into forbearance, repayment plans or even loan modification. Creditors may be willing to lower the interest rate in order to get some money rather than risk it all through a bankruptcy settlement.

Lifestyle Changes & Avoiding Common Debt Management Pitfalls

The best way to get out of credit card debt depends on your lifestyle. What are your expenses? Your habits? How do you stay motivated? Choose the right strategy that works best for you.

Most importantly, once you pay down your debt, have a plan in place to keep your debt low. Avoid making minimum payments and pay your balance in full every month. You’ll also want to pay on time.

There are many apps available to help remind you of when your bill is due. When you’re paying your full balance, take the time to look over your itemized statement to check for any fraud or subscription charges that you don’t need. This also will help you keep track of your spending, making sure you’re sticking to a budget.

You’ll also want to build an emergency fund. This will stop your bills from snowballing when your car breaks down again. Sure, the parts and labor you’re paying for weren’t included in your budget, but now you can still pay off your credit card balance on time and avoid paying interest month after month.

Many people worried about getting back into credit card debt turn back to good old-fashioned cash. Using cash may prevent you from impulsive spending while also helping you understand how much money you’re spending.

Tracking Progress and Staying Motivated

When you’re looking at a mountain of debt that’s growing every month, it’s important to take action sooner rather than later. Give yourself achievable goals, such as setting a budget or a payment plan.

When you make wins like paying off a line of credit or watching your credit score tick up a few points, celebrate it! Every step you take makes a huge difference, lowering the amount you owe as well as the weight on your shoulders. Remember, you don’t have to tackle your debt alone. Seek help. Interested in getting help from the financial experts and tools from DCU? Learn more about becoming a member today.

Please note, membership is required to open a DCU Visa® Credit Card. Visit our membership eligibility page for more information.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.