In 2018, the average household owed $9,333 in credit card debt (for more see this post). Almost 50% of Americans have revolving credit debt. So, what can you do about it? The easier answer: pay it off! However, not everyone has thousands of dollars at a time to hand over to a credit card company. Luckily, there are strategies to pay down revolving debt in an effective way.
1 – Target One Credit Card at a time
This strategy can be effective although the name is a bit misleading. Using this method, you pay the minimum amount on each card on-time every month. THEN, focus any additional money on one of the credit cards. You should focus on the debt with the highest interest rate first so you accrue less interest.
2 – Debt-Snowball Method (coined by Dave Ramsey)
Tons of people swear by this method. As explained on www.daveramsey.com:
- List your debts from smallest to largest.
- Make minimum payments on all of your debts EXCEPT the smallest.
- Pay as much as possible on your smallest debt.
- Repeat until all debts are paid.
3 – Consolidate Your Debt to a Single Card or Personal Loan
Sometimes people feel more in control when they just have one payment instead of 5 – 10. If you are one of those people, consider moving all credit card debt to a single “balance transfer” card. If you have a decent credit score, you may be able to find an option with 0% interest which can buy you some time to knock out the debt without accruing tons of interest. Be careful with personal loans. If you respond to an offer that says you were pre-approved, check the interest rate and payment options. Too often, the interest rate is astronomical (20%-150%).
4 – Using Home Equity
Home equity can be an excellent tool when trying to pay down credit card debt. Home equity loans usually have a lower interest rate than credit cards. In addition, this type of loan can be tax-deductible. One important note is that sometimes a closing cost can be a part of the home equity loan process.
5 – Negotiate!
You would be amazed at how much you can reduce your credit card debt by contacting the card company and negotiating. If you are behind on payments, you can use that as leverage. Tell the credit card company you will pay the entire balance that day if they reduce it to a certain amount. Credit card companies often sell their “bad debt” to collections companies for less than $0.40 on the dollar. It is in their best interest to collect your debt directly for $0.50 to $0.75 on the dollar.
If you find yourself saddled with credit card debt and you want a change, help is out there. Elias Dsouza of Dsouza Legal Group is a skilled credit counselor and debt negotiator. He has been helping people get their debt under control for over 15 years.