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In 2020, over 206 million Americans owned at least one credit card and contributed to the $14.27 trillion worth of household debt that has been accruing interest steadily. It’s no surprise that the average household carries around $52,000. The question is — how do we begin to pay back our debts or just avoid it altogether?
If you find yourself burdened with an outstanding credit card balance and interest charges building each month, consider the following strategies for clearing your debt.
Budget your monthly expenses, see what you can put towards your repayments and stick to a plan that is comfortable for you. Always try to pay more than the minimum so you can avoid the extra interest and get out of debt a bit earlier. Pro tip: setting up an automatic debit to transfer that amount to your credit card account on a recurring date each month will help ensure that you stay on track.
Paying off the account with the highest interest rate first could represent significant savings — the interest saved could be used to repay the rest of your debt sooner. Once you’ve paid that account off, close it to avoid further charges and move on to the account with the next highest interest rate.
0% balance transfer credit cards let you transfer your existing debt onto a new credit card with the benefit of paying no interest for an introductory period. It’s important to repay your balance transfer amount within the introductory period since the interest rate will typically revert to a higher interest rate.
A debt consolidation loan can offer substantial savings on interest payments compared to a credit card. It also often allows a longer term to pay back your debt. When considering a personal loan, factor in related costs such as application, establishment, monthly or yearly fees.
While this may sound drastic, refinancing your home loan can offer with it several perks. Refinancing generally gives you access to lower interest rates when you take on a new lender’s deal. Carefully weigh up the pros and cons of this option though, because you’ll essentially be moving your credit card debt onto your home loan, which means stretching your debt over more years.
By having a chat with your bank, you may be able to negotiate a more comfortable payment plan. You could be approved for an interest reduction or a short payment hiatus, which could help you catch up on your repayments.
Financial counseling does not have to be expensive and you can even receive help for managing your debts. Obtaining professional financial and legal advice for your personal situation can sometimes be the first step towards debt freedom. You will be given personalized advice on how to consolidate your debts, manage creditors and protect your credit rating.
In a survey conducted by Finder.com in July 2020, credit card debt was reported to be the highest form of debt stress for Americans who admitted to being in debt. Approximately 32.14% of Americans claimed credit card debt gives them the most stress when compared to student loans, mortgage, medical debt, auto and personal loans.
| Types of debt | Most stressful types of debt according to those with debt |
|---|---|
| Credit card debt | 32.14% |
| Student loans | 21.39% |
| Mortgage | 21.15% |
| Medical debt | 12.43% |
| Auto loans | 8.48% |
| Personal loans | 4.42% |
Source: https://www.finder.com/personal-loans/debt-consolidation-loans#american-debt-stress-statistics
When looking at age demographics, stress for other debts fluctuated as participants aged going up and down while credit card debt stress only increased with age. Around 46% of those aged 65 and older noted being the most stressed about credit card debt.
| Age range | Mortgage | Auto loans | Student loans | Medical debt | Personal loans | Credit card debt |
|---|---|---|---|---|---|---|
| 18-24 year olds | 12.35% | 7.41% | 41.98% | 6.17% | 1.23% | 30.86% |
| 25-34 year olds | 17.93% | 7.59% | 35.17% | 13.79% | 5.52% | 20.00% |
| 35-44 year olds | 23.16% | 9.60% | 20.34% | 11.30% | 6.21% | 29.38% |
| 45-54 year olds | 20.86% | 6.75% | 17.18% | 15.95% | 4.91% | 34.36% |
| 55-64 year olds | 23.65% | 8.78% | 14.86% | 14.19% | 4.05% | 34.46% |
| 65+ year olds | 25.20% | 10.57% | 6.50% | 9.76% | 2.44% | 45.53% |
While credit cards can be a convenient way to pay, make sure you’re in control of them and not the other way around. If you have found yourself in credit card debt, follow the necessary steps and seek assistance as soon as possible to regain control of your finances. When considering if a credit card is still the best option for you, compare all your options and be wise about what you need for your own personal circumstances.
To prevent falling into debt, the following tips can help you keep your credit card under control:
Pictures: Shutterstock
Did you know that if you’re not careful you could end up being financially liable for someone else’s credit card debt?
