In the second quarter of 2023, credit card debt among Americans topped $1 trillion. Further, ���card balances "were more than 16% higher in the second three months of this year compared with a year earlier," according to The New York Times, suggesting this is a mounting problem in the U.S.
Between inflation driving up prices and steep average credit card annual percentage rates (APR) compounding existing balances, credit card debt can quickly begin to feel like an overwhelming problem that's spiraling out of your control. Before your head starts to spin, know that there are ways you can start chipping away at your credit card balance and, hopefully someday soon, wave goodbye to this debt burden.
1. Try the debt avalanche or debt snowball method
Two commonly championed approaches to paying down debt are the debt avalanche method and the debt snowball method. With the avalanche approach, you "focus payments on high-interest debts first, while making the minimum payments on the rest of your accounts," Bankrate stated. As soon as you pay off the balance on your account with the highest rate, you move your focus to the account with the second-highest rate and so on, until your debt is paid off in full. It might feel intimidating and possibly demotivating to start with your highest-interest account if it also happens to have a sizable balance, but the debt avalanche's major upside is the "possibility of saving on interest charges," per Bankrate.
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The debt snowball method, on the other hand, supports the momentum of motivation, as you'll "likely see progress quickly," according to Bankrate. With this strategy, you first focus on paying down the account with the lowest balance while maintaining minimum payments on your other accounts. Once you've paid off that lowest account balance, you'll move to the next lowest balance and then the next, until your balances have disappeared. The downside of the snowball approach is that it doesn't consider interest. "If your larger debts are also the ones with the highest interest rates, you may pay more in interest using the snowball method than you would with another debt-repayment strategy," according to Bankrate.
2. Consider consolidating your debt
Another option for getting your credit card balances under control is to consolidate your debt. This means you'll combine all of your existing debt into a single monthly payment, potentially with a lower interest rate. And unlike the aforementioned snowball and avalanche strategies, this approach "doesn't require any strategizing," per Credit Karma.
You can consolidate your debt in one of two ways:
Personal loan: As CNBC Select stated, a loan "provides you with a fixed amount of money over a fixed time period and usually at a fixed interest rate," and the rates for personal loans are "often lower than keeping a balance on your current credit card(s)." You'll need to meet a lender's eligibility requirements, though, and there's the chance you'll owe a loan origination fee.
Balance-transfer credit card: The perk of a balance-transfer card is that you may be able to secure a 0% introductory balance-transfer APR if you have good or excellent credit, which can allow you to avoid paying any interest. However, "if you make your payments late, your introductory offer could be revoked," per Credit Karma. Further, a balance-transfer fee may apply, and there's the reality that promo offers only last for a certain period before the standard credit card APR kicks in.
3. Negotiate with your creditors
Particularly if you're experiencing financial hardship, such as from a job loss or an illness, it's worth reaching out to your lender. As Nerdwallet reported, a credit card issuer "may be willing to negotiate payment terms or offer a hardship program, especially if you're a longtime customer with a good track record of payments." This could translate to a lower interest rate or monthly payment for a while or even allow you to pause on debt repayment, any of which could give you some much-needed room to catch your breath and hopefully get back on track.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week.