During the pandemic, Americans have done a great job of reducing their overall debt, especially when it comes to credit cards. But now that life has returned to normal, some bad financial habits have reappeared.
Total US credit card debt in the second quarter of 2022 increased 14% from year-ago levels. According to a WalletHub study, the average credit card debt per household now stands at $8,942. This debt cripples some families financially and adds enormous stress. Here are some ways to reduce your credit card debt.
Pay more than the minimum payments
Paying just the minimum amount each month on any type of debt, especially high interest rate debt, is never a good idea. Interest on credit cards is extremely high compared to home or auto loans because credit card debt is an unsecured short-term loan. The average credit card debt is now nearly 19%, so paying more than the minimum amount each month is crucial. You will likely save hundreds of dollars over the term of the debt simply by paying more than the minimum. Assess what you can afford to pay each month with your credit card and you’ll start to see noticeable drops in the amount owed.
Ask for a lower interest rate
A surprising number of cardholders can get a lower APR simply by requesting one. Ideally, you should show several months of positive payments in your account before asking for a lower interest rate. Once you’ve shown the card company that you’re managing your debt, they can grant your APR reduction request.
Make sacrifices to free up more revenue
Do you have more monthly payments than income? Are you paying more interest than your principal? If so, it may be time to make some tough sacrifices. Get rid of your streaming services for a few months. Make meals at home, possibly in bulk, instead of eating out. Commit to a spending freeze one week per month. Try to negotiate lower monthly charges on your cable or Internet bill. Put the extra money you now have on your credit card debt and enjoy the stress relief that comes with it.
Use a cash back card
If you need to continue transacting with a credit card, be sure to use a refund card. Depending on the card you use, you can earn between 1% and 5% on every transaction, just by using that credit card. It’s almost like free money for the cardholder. Take any cash back you earn and apply that money to your credit card balance. Every little bit counts when trying to pay off your balance.
Consolidate your credit card debt
Consolidating with a low-interest loan or a balance transfer credit card could make paying off debt more feasible. With a balance transfer card, you transfer the balance from one credit card to another. The card may have a lower interest rate than your existing card, reducing the charges you incur each month. There will likely be a balance transfer fee on the card, which impacts how much you can save with this option.
Pay your credit card bills on time each month
You may not reduce your credit card debt, but you’ll avoid late fees and a higher interest rate if you make each of your monthly payments on time. Late payment fees add unnecessary expense on top of accrued interest. And issuers can sometimes dramatically increase your interest rate due to late payment.
Make credit card payments every two weeks
By making a payment to your issuer every two weeks instead of once a month, you squeeze an entire additional payment into the year. There are 52 weeks in a year, which gives 26 half-payments. This equates to 13 full payments, rather than the standard 12 monthly payments for the year. If you get paid bi-weekly, dedicate a portion of each paycheck to your credit card.
Cancel subscriptions you no longer need
Are you still paying $5 a month for an app or streaming service you no longer use? What about a service that lured you in with a month or two free, but now charges you a monthly fee? Those tiny subscription payments can be a lot of wasted money every year. It’s money that could pay off your credit card debt. Carefully review all of your monthly transactions and eliminate any that you don’t need.