Even while Americans are paying off credit card debt at a record pace, millions of people are drowning, making only the minimum payments every month.
The pandemic, job loss, and paying for medical insurance out-of-pocket means more people are paying bills with plastic because they’re not bringing in any income.
Credit card debt strangled the life out of me for close to a decade.
Thankfully, after learning how to budget, getting a side job, and selling high-priced items, I eliminated close to $30,000 in debt. I considered myself one of the lucky ones.
Millions of people aren’t so lucky.
“Your options for getting out of serious credit card debt really depend on two bands of debt,” explains Steven Dashiell, a credit card expert from Finder.com. “That first band is the $5,000 to $15,000 range – in this range, you have a few routes you can take to lower that debt.”
Dashiell explains that the first route is simple planning and targeted payments.
For debt below $5,000
“If your credit card debt is spread out over a few cards, you’ll want to identify which of those cards have the highest interest rate and plan to pay those cards off first. This will cut costs over the long run as you’ll be drastically cutting down on the interest you accrue over time.”
Before you start making those payments though, you’ll want to give your provider a call first.
“Credit card providers are surprisingly open to helping you work through a financial squeeze and may agree to lower your interest rate if you explain your situation to them. This is especially true in the times of COVID – most providers have greatly expanded their aid options to help struggling cardholders. After all, your provider would much rather you eventually pay off your debt, even with a discount, than have you default.”
And of course, you’ll want to avoid making new purchases on your credit cards wherever possible while you pay off your debt.
“Calculate your total debt and create a budget if you haven’t done so already! This will give you a solid overview of your financial necessities and how much money leftover can go toward paying off your debt.”
Consider balance transfer cards
Your other approach in this range of debt is picking up a balance transfer card.
A balance transfer card lets you consolidate your eligible existing debts onto one credit card. This means you’ll have just one payment to worry about rather than 3 or 4.
More importantly, though, balance transfer cards often come with introductory periods that will give you a set amount of time to pay off your balance transfer at 0% interest.
This is a huge opportunity for saving money on interest while paying off your debt. Most cards average around 12 months for the intro period, but some go as high as 18 or 21 months.
If you can qualify for a balance transfer card and know you can pay off your debt before the end of the intro period, a balance transfer is a great option for dealing with your card debt.
If your debt is $15,000 and above
Once your debt goes above $15,000, your effective options for digging out of debt change a bit.
The budgeting and targeting of high-interest rate cards approach is still a sound strategy, but the interest your debt is racketing up at these levels can snowball real fast. It’s sort of like using a bucket to bail out water from a sinking cruise ship. You can try your hardest to pay down that debt, but the incoming interest is going to keep you from getting anywhere.
Given the amount of debt you’re paying off at this range, you might be paying down that loan for a year or more.
Don’t get comfy just because you have one debt instead of 3 or 4 breathing down your neck.
“Pay off that loan as soon as you can to minimize the interest and avoid falling behind on your payments.”
Steven Dashiell is a credit card writer at Finder. He’s worked on 250 Finder articles and counting, helping readers embrace and maximize credit cards. Backed by nearly a decade of research and reporting experience, Steve’s work can be seen on Debt.com, CreditCards.com and Lifehacker.
