5 Ways to Reduce Credit Card Debt

Credit card debt is on the rise with an almost 20% increase from a year ago! Current estimates place credit card debt in the US at $986 billion in the first quarter of 2023, according to the Federal Reserve Bank of New York. If you’re one of the people dealing with high-interest credit card debt, here are 5 ways to shrink your debt:

1. Assess your spending habits: Start by creating a comprehensive budget to understand your income and expenses. This will give you a clear picture of your financial situation. Use a worksheet or online tool to track your spending and identify areas where you can cut back.

2. Develop a repayment plan: There are two common approaches to paying off debt. The avalanche method involves prioritizing debts with the highest interest rates, paying them off first. The snowball method focuses on tackling the smallest debts regardless of interest rates to build momentum. Make minimum payments on all debts and allocate any extra funds to accelerate the repayment of one debt at a time.

3. Utilize balance transfer credit cards: Look for credit cards that offer 0% interest on balance transfers for an extended period, often up to 21 months. Take advantage of this offer by paying off as much of the balance as possible during the promotional period. Be aware that any remaining balance after the promotional period ends will accrue interest at the card’s regular rate, typically around 23%.

4. Negotiate for a lower interest rate: Contact your credit card issuer and inquire about reducing your annual percentage rate (APR). Many cardholders have successfully negotiated lower rates, and it doesn’t hurt to ask. Additionally, you may also be able to negotiate other benefits like a reduced annual fee, a higher credit limit, or waived late fees.

5. Build emergency savings: While paying down your debt, it’s essential to set aside some money for emergencies. This will prevent you from accumulating more debt in the event of unexpected expenses. Take advantage of high-yield savings accounts offered by online banks, as they often provide competitive interest rates. Consider opening a one-year certificate of deposit (CD) to maximize your savings. Keep in mind that rates for longer-term CDs have reached their peak, so it’s advisable to secure a favorable rate now.

By implementing these strategies, you can take control of your high-interest credit card debt and work towards a more secure financial future. Remember, it’s crucial to develop responsible spending habits and maintain a disciplined approach to repay your debt effectively.