Managing Credit Card Debt

Most people use their personal credit card every day as a tool to achieve financial goals and build their credit history. But it’s easy for credit card debt to accumulate, especially over time and around the holidays when you may be spending more than normal. Recent studies have found that the average American owes over $6,000 in credit card debt.

If you’re looking to tackle your credit card debt this year, there are a number of ways that you can do this in a slow and steady way.

Why is paying off credit card debt important?

Carrying credit card debt can not only feel stressful, but it can also harm your future finances. Whether your balance is on a single card or across several, having a balance that’s over 30% of your total credit availability can have a negative impact on your credit score. That means that some lenders may be more hesitant to work with you if you need to open a new card or take out a loan.

Even if you’re able to get a loan, a higher credit balance could also lead to higher interest rates on those loans, which means you’ll be paying more over time. Credit cards themselves also typically come with higher interest rates than other types of loans, which means you’ll continue to accumulate and pay interest the longer your balance remains high.

Taking all of these factors into account, you can quickly start to accumulate even more debt on top of the balance you already owe.

Strategies to minimize personal credit card debt

Review and update your budget

The best place to start with managing credit card debt is to face your finances head-on. Look at your monthly budget and account for all of your income and outgoings. This helps you to know exactly where you’re starting from and also stop spending on items you may not need, thus accumulating more debt.

Track your income and expenses over the month, regularly review your bank and credit card statements, and see what areas you might be able to cut or reduce spending. Tightening up your budget now means you’ll also have more money to put towards paying off your debt.

Pay more than the minimum each month

While it’s important that you always cover the minimum required payment on your credit card each month, if you’re able to, paying more than this is a great step towards becoming debt free. Any balance you have each month will accumulate interest, which often leads to higher payments the longer you leave this balance due.

By paying more than the minimum, you’ll be responsible for interest on a lower balance and you’ll also be working towards paying off your total balance sooner.

Use the “snowball” or “avalanche” methods

If your credit card debt is spread across several accounts, consider using a one-at-a-time approach to pay these off. There are two common ways to do this—the debt snowball or the debt avalanche.

The snowball method means that you’ll pay your smallest debt first until it’s completely paid off, then you move onto the next smallest. This means that you can continue to build momentum as each account is paid in full.

Alternatively, the debt avalanche means that you start by repaying your highest interest debt first. This can help you save interest long-term, as you tackle the highest ones first.

Think about how you could budget for automated payments so that you’re not manually responsible for these each month. This will allow you to always pay the minimum, while giving you the option of paying additional money towards the overall balance when this makes sense to do so.

Consolidate credit card debt

Debt consolidation is where you open a new loan or credit card at a lower rate than your existing accounts, but use this to pay off those older, higher interest balances. With the right loan or card, this can lower your overall repayment due to advantages that opening a new account can bring.

Some credit cards offer a low interest rate for the first year, sometimes even 0%, when you transfer a balance. This gives you a year to pay off that debt, without accumulating any more debt from high interest on the balance.

You could also consider a debt consolidation loan or home equity loan, where you can use the money to pay off your highest interest balances. Business owners can also use commercial loans to help pay off business credit card debt that may have accumulated.

Before applying for a new card or loan, it’s important to assess your overall financial situation. If your credit score is poor, this may not be the right option for you as you could be turned down or face higher interest rates due to a lower credit score. Introductory rates also last for a limited period of time, so it’s important to be realistic about the time you think it will take you to pay off the balance—if it’s beyond the introductory period, will you then be subject to a higher interest rate than your current credit card? Always look at other factors like the annual fees of any new credit card, late fees, and APRs to consider whether this is the best option for you.

Consider increasing your income

If you want to make a real dent in your credit card debt this year, without waiting for your budgeted savings to catch up, consider adding to your income where possible. This doesn’t always mean going out to get a second job (although many people do this and can make significant money from freelancing, starting a small business, or even working part time).

Ask if there are additional hours you can take on at your current position, or go through your home to declutter some of your old belongings that you no longer need. Selling through online marketplaces can not only help you earn some extra cash to put towards your debt, but it also means you’re making more space in your home!

Work with creditors or your local bank

If you’ve managed to maintain a good credit score and have always paid your credit card bill on time, you may be able to negotiate a lower interest rate with your lender. Speak to them about your options or if they have a different loan or credit card that you could transfer your balance to.

Tackle your credit card debt this year

Credit card debt can feel overwhelming, but it doesn’t have to be. With a strategy in place for paying off your balance, you can make what once seemed a nightmare into a more manageable amount.

If you need additional support, consult one of our bankers at 1st Colonial Community Bank to find a debt repayment solution that works for you. We’ll review your current financial situation and provide options to help you get out of credit card debt and move forward with rebuilding and strengthening your credit score.

Visit us today at one of our branches in Pennsylvania and New Jersey to learn how we can help you better manage your credit card debt this year.