Can You Eliminate Your Credit Card Debt?

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It can be far too easy to jump into credit card debt. The charges add up and suddenly you have a balance that you can’t pay in full by the end of the billing cycle. As the months go by, you can only seem to maintain that same balance or watch it grow.

Why does this happen? credit cards typically have steep APRs. APR is one of the common loan terms that you should know as a regular credit user. The term is crucial for understanding how your credit cards, lines of credit and personal loans work. APR stands for “annual percentage rate.” It is the yearly rate that a borrower is charged for a loan. It includes the loan’s interest rate, along with other charges and fees (for example, annual fees).

Credit cards carry notoriously high APRs. According to Forbes research, the average credit card APR is currently 24.59%. That annual percentage can really make your outstanding balance grow — and grow fast. It’s no wonder why so many Americans have soaring credit card debt right now. The Federal Reserve Bank of New York recently found that American credit card debt is approaching a trillion dollars. That is a record-breaking amount.

If you’re dealing with high balances on your credit cards, you’re not alone. Millions are in the same place as you, and unless you make some changes to your financial habits, you won’t leave that place any time soon. So, how can you pay down your credit card debt? And how can you keep it down after that?

Read ahead to find out.

How Can You Pay It Down?

Ask for a Lower Rate

Contact your credit card company and ask them whether you can have a lower rate. They just might agree to your request! If you’ve been a loyal customer and you’ve paid your bills on time, your company just might give you a lower rate. The worst that will happen is the company will reject your request and you’ll be in the same position you started in.

You can also request for your company to reduce your annual fee or waive late penalties. Just asking could make your repayment process much easier. 

Make a Debt Repayment Strategy

Start by looking at your personal budget to see how much you can afford to dedicate toward debt repayments every single month. Then, use a credit card payoff calculator to see how long it will take you to tackle your debt using that amount. If that length of time seems too far off, adjust some of your budgetary expenses (for example, entertainment expenses) so that you can bulk up your debt repayments. 

If you have multiple credit cards with outstanding balances, you should adopt a debt repayment strategy. One popular strategy is called the “avalanche method” — this involves aggressively paying down the card with the highest balance while paying the minimum for the lower balances. The idea is to tackle your largest pile of debt first and give your attention to the smaller piles afterward.

Another strategy that you could try is the “snowball method,” which is the opposite of the avalanche method. You’ll aggressively pay down the card with your lowest balance while paying the minimum for the other cards. Once you’ve finished with that card, you’ll move up to the card with the second smallest balance. This strategy allows you to slowly build momentum as you go.

Choose your strategy and commit to it.

Use a Balance Transfer Card

Another solution that you can turn to is a balance transfer card. A balance transfer card can offer you a 0% interest rate on a transferred balance for an introductory period (this could be almost 2 years). By transferring your credit card’s balance onto this type of card, you will only have to focus on paying off that amount. You won’t have to worry about the effects of compounding interest until that introductory period is over.

To get the most out of this card, try your best to pay down the entire balance in that limited timeline.

How Can You Avoid Credit Card Debt?

Break the Minimum Habit

Do you have a habit of only covering the minimum payment? You should break that habit. The minimum is the lowest amount that you can pay on your credit card bill without incurring a late fee. Other than that, paying the minimum isn’t very helpful. It won’t do much to shrink your outstanding balance or keep up with compounding interest.

So, if you only pay this amount on your bill, your balance is going to keep growing as the months go by. Eventually, it could get out of control.

Pay Bills on Time

Whenever you pay your bills late, your credit card company will charge you a late fee. A late fee could cost you up to $40. It can also come with other penalties that can push you into credit card debt, like temporarily raising your APR.

To make sure that you always pay your bills on time, you can automate payments to your credit card from your checking account. Or you can use a mobile banking app to set up reminders that your credit card bill is coming up. This should encourage you to pay before the deadline.

Skip Cash Advances

A cash advance allows you to borrow a certain amount against your credit card’s line of credit. So, you’ll have temporary funds that you can transfer into your bank account and use.

What you may not know is that credit card cash advances are not treated the same as charges onto your credit card. Your regular charges will have a grace period in the billing cycle where they will not face any interest. With cash advances, you do not get that grace period. Your loan will accrue interest immediately.

In addition, the interest rate for a cash advance is typically steeper than your credit card’s standard rate. So, you won’t have a grace period for interest and that interest will be higher than usual. These two factors will make it much easier for you to slip into debt.

Use Other Safety Nets

Credit tools like credit cards, lines of credit and personal loans can be extremely helpful in emergencies. You can use these borrowing solutions to pay off an urgent expense in a short amount of time and then deal with the repayment process later.

While credit tools are great safety nets, they shouldn’t be the only ones that you have available. You should have an emergency fund full of savings sitting in your bank account. When you’re hit with an emergency expense, you can withdraw the necessary amount from the fund and pay it off immediately. Doing this will save you from having to borrow anything.

You should only turn to credit tools in emergencies when you don’t have enough savings available.

Stop struggling with your credit card debt. Follow these steps to eliminate this problem for good.

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