According to Experian’s latest State of Credit report, the average U.S. consumer holds about two bank-issued credit cards and carries a total balance of $5,551. That’s a lot of money, especially if you’re paying interest of 15% to 20%. The Federal Reserve found that total credit card debt is also at its highest point ever, surpassing $1 trillion.
Four strategies to pay down your credit card debt
Pay more than minimum
Credit card issuers only require an average monthly minimum payment, generally 2% to 3% of the balance, to make sure you’re making timely payments. While this may seem kind, banks extract significant profits from the interest rates that are charged each month. Therefore, the longer it takes you to pay your card off, the more money they will make.
Debt snowball strategy
The debt snowball strategy involves using incremental repayment as a motivation to continue this process. You prioritize your credit card payments by amount owed, specifically focusing on the smallest amounts first. When you’ve paid off the credit card debt, you then roll that payments into other debt. Just like a snowball rolling down a hill, your payments pick up momentum and grow in size. eventually allowing you to eliminate your debt completely.
Debt avalanche strategy
Just like the snowball strategy, this strategy simply exchanges approaches. Instead of focusing on the amounts, you focus on the interest rate paid, starting with the ones that are highest. Research shows that this is a faster, and cheaper, way to get out of debt.
Putting your payment on auto-pilot allows you to actually make payments and significantly reduce additional fees and late payments.