Do you find yourself carrying one or more credit card balances from one month to the next? If so, you’re far from alone in this regard. Almost half of adults in America (47 percent) had credit card debt in 2020 — fueled for many by financial ramifications of the COVID-19 pandemic.
While carrying a balance on credit cards isn’t the end of the world, it can become very expensive — especially if you’re paying close to the minimum amount due rather than aggressively working down your balance. It can also stretch out the timeline for repayment, meaning you can stay in debt for months or even years on balances that started out pretty manageable.
So, what can you do to stay on top of your current credit card debts and get rid of them over time?
Here are some tips.
Pay More Than the Minimum Due
Keeping up on minimum payments prevents your credit accounts from becoming delinquent or garnering late fees. But the truth is you’re making debts cost more and taking longer to pay off with minimum payments. Consider this an emergency, one-off measure rather than a consistent approach.
Besides speeding up repayment and paying less in interest, devoting more money than you have to each month will help you avoid maxing out your credit cards and keep your credit utilization levels low. Both work in favor of your credit score and make you appear less risky to lenders.
If you’re already living relatively paycheck to paycheck, coming up with more than the minimum will require getting creative — perhaps by looking into another income stream or combing your budget for even more opportunities to free up funds.
Set Limits on Credit Card Spending
Make your credit cards off-limits — either mentally or physically — except for purchases you can afford to pay off in full within a month or less. If the temptation to overspend on credit is strong, you may want to physically stow away your cards in an inaccessible place and switch to cash or a debit card. If you’re able to set mental limits on credit spending, that works too.
Changing your habits is key to learning how to manage credit card debt effectively in the short and long terms.
Take a Strategic Approach to Repayment
Throwing some money across all your balances each month is not necessarily the most efficient way to lower your debt levels. Try a targeted repayment strategy instead. Two popular approaches are:
- Debt avalanche: Pay the minimum due on all accounts but channel as much money as possible toward the highest-interest debt. Then move down to the next-highest APR. Do the same down the line until they’re all paid off. You’ll pay the least amount possible in interest this way.
- Debt snowball: Pay the minimum due on all accounts but channel as much money as possible toward the lowest balance. Then move onto the next-smallest. Do the same up the line until they’re all paid off. This can help debt repayment seem less daunting because you’re working your way up from “easiest to hardest.”
In addition to sticking to a repayment strategy, look into debt relief options for a heavier-duty approach than do-it-yourself repayment. You may find it beneficial to transfer balance(s) to a low-interest card, utilize a consolidation loan, negotiate with your creditors via settlement or make an appointment with a credit counselor.
The best way to manage credit card debt depends on your exact circumstances, but having a plan of action is always key.
