5 Ways to Reduce Credit Card Debt Before the Holiday Season
According to the data, about half of holiday shoppers have already started shopping or plan to start by Halloween a recent Bankrate survey. Most of them will pay for at least some of their purchases with credit cards, the survey shows.
“A few years ago, early holiday shopping was all about supply chain chaos,” said Ted Rossman, senior industry analyst at Bankrate. “Now I think the motivation is more financial.”
Many consumers are anticipating the impact of inflation on their purchases, he said, and they are stressed about the cost of holiday shopping. However, it’s also important to consider the rising costs of carrying credit card debt.
Overall, credit card debt in the U.S. has reached a staggering record $1.03 trillion, according to the Federal Reserve Bank of New York. The average consumer carries about $6,000 in credit card debt — a 10-year high.
Many Americans also find themselves with more card debt each month.
“One reason for rising debt is that people are struggling to make ends meet amid high inflation,” said Matt Schulz, senior credit analyst at LendingTree. “They view their credit card as a de facto emergency fund.”
But consumers pay an exorbitant price for this loan.
The The average credit card interest rate is now about 21%, according to the Federal Reserve Bank of St. Louis. But Lending Tree thinks so The average interest rate for new card offers is 24.45%the highest since the company began tracking credit card fees in 2019. Additionally, one in three of the 200 cards reviewed had a rate of 29.99% or higher.
Here are five strategies to start paying off your credit card debt before you start holiday shopping:
1. Know what you owe
First, keep your debts and debts under control. Determine the interest rate you pay on the total balance of each credit card. If you know how much you owe and how much you’ll pay to borrow that money, it’s easier to come up with a plan to get out of debt.
2. Check your credit report and score
At annualcreditreport.com, you can access your credit reports online for free from each of the three major credit rating agencies – Equifax, Experian and TransUnion – to help you manage your finances on a regular basis.
Look for errors, including accounts that are not yours or that you did not authorize, or incorrect information about credit card limits or loan balances. You can dispute these errors directly online on the credit reporting agency’s websites.
While the free credit reports on annualcreditreport.com do not include your credit score, many credit card companies offer their customers a free look at their credit score. When you receive your score, you will often also learn what risk factors affect your score and what you can work on to improve it.
Paying your credit card bills on time and using 10% or less of available credit are important factors in improving your score. Higher scores can help you qualify for cards with lower rates or cards with promotional offers of 0% interest.
3. Consider consolidating your debts
One of the best ways to get rid of credit card debt is to consolidate using a 0% interest balance transfer card. However, you may already need to have a credit score of 700 or higher to get one.
A 0% interest balance transfer card offers 12, 15, or even 21 months of no interest on transferred balances. You may be charged a fee of 3 to 5% on the amount you transfer. So check the numbers to make sure the transfer is worth it.
For many consumers, it is the “best weapon” for reducing credit card debt, Schultz said. “The ability to extend up to 21 months without accruing interest on that balance is truly a game changer,” he added. “This can save you a lot of money. And it can dramatically reduce the time it takes to pay off that balance.”
If you get a card with 0% interest, make sure you pay off as much of the remaining balance interest-free as possible during this introductory period. Generally, it will then adjust to a significantly higher interest rate.
Another option for debt consolidation is a personal loan. Such loans are currently available with a average effective annual interest rate of approx. 12%, although a good credit score could get you a rate as low as 8%. Borrow only enough money to pay off your credit card debt, not to spend more.
“They’re working with a lender,” said Rod Griffin, senior director of public education and advocacy at Experian. “They give you a personal loan that you can use to pay off your credit card debt. The interest rate is relatively low, usually over a longer period of time, but it can reduce your payments.”
“And all payments to credit card accounts would then be paid in full and reported as paid,” he added. “That’s the key.”
4. Work with your card issuer
If you don’t qualify for a 0% card or personal loan, contact your card issuer and ask about a cheaper credit card rate.
Just call. A recent one Lending Tree Survey found that about three-quarters of consumers who asked the issuer for a lower interest rate on their credit card last year received one — and they didn’t need good credit to do it.
If you are really strapped for cash, you can also try to negotiate a debt settlement directly with the creditor. Your goal is to get the creditor to settle your account for an amount that is less than the amount owed, since at least one payment is better than none. However, it can also have negative consequences, such as: B. a tax bill for the amount of debt that you fail to pay and that has been forgiven.
Oleksandra Yagello | moment | Getty Images
Be careful when using debt settlement programs offered by outside companies. With a debt settlement company, instead of paying your creditor, you make a monthly payment into a separate bank account set up by that company.
Once there is enough money in the account, the company will use the money to negotiate with creditors for a lump sum payment that is less than what you owe. These programs can take years and you can end up paying high fees, experts say.
“You may be better off using these payments toward your existing debts and reducing credit card payments yourself rather than paying a debt settlement company,” Griffin said.
5. Choose a repayment strategy and stick with it
Once you’ve lowered the interest on your credit card debt, you’ll need to figure out how much you can really afford to pay each month, biweekly, or pay period.
Find out how much you’ll have to pay for certain expenses like rent or mortgage, utilities, groceries and transportation, as well as debt payments, including student loans and credit card bills.
Commit to dedicating a certain amount of your salary to paying off your credit card debt – at least the minimum amount due on each card.
If you have multiple cards to pay off, consider whether you want to prioritize paying off the debts with the highest interest, called the “avalanche method,” or paying off the smallest to largest amounts, called the “snowball method.”
If you still prefer to use a credit card for everyday expenses, make sure you pay it off in full each month while you pay off the balance on other cards. This is known as the “island approach”: using different cards for different purposes with the goal of, for example, getting the lowest possible interest rate, rewards or cash back for each card.
One repayment strategy isn’t necessarily better than the other, but you need to have a plan – and stick to it.
“There is no quick fix,” Griffin said. “It takes time to get into debt; it takes time to work your way out of debt.” The best solution “is usually to go slow and steady, have a plan, pay it off over time and change your behavior,” he added.
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