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Americans are relying on credit cards more than ever. Total credit card debt reached a record $1 trillion last year, according to the Federal Reserve. More cardholders are carrying a balance and debt — without a plan to pay it off.
Almost half of cardholders carry debt month to month, up from 39% in 2021, according to a recent Bankrate survey. The average American owes $6,088 on their credit cards, the highest amount in a decade.
Why is credit card debt so high?
There are a few reasons credit card debt is so high right now:
- Higher interest rates: Credit card APRs have risen steadily over the past few years, which makes carrying a balance more expensive. The average APR for revolving credit increased from 17.91% in 2022 to 22.77% in the third quarter of 2023, according to the Federal Reserve.
- Lack of emergency funds: Over 20% of Americans have no savings, according to a separate Bankrate survey. A lack of emergency funds can lead to debt — 43% of Americans with credit card debt say it’s primarily because of an unexpected or emergency expense.
- Rising cost of living: Heightened inflation over the past few years means household budgets are stretched thin. From gas and groceries, many things cost more, which may force some families to use credit cards to make ends meet.
- Lapsing government assistance: Many pandemic-era relief programs — including stimulus checks and student loan payment pauses — helped Americans avoid taking on too much debt when the pandemic began. Now that many of those programs have lapsed, Americans have returned to using credit cards to cover purchases.
How to pay down credit card debt
Over 1 in 5 adults who carry debt say they’re overwhelmed by it. While paying down credit card debt isn’t easy, planning to reduce it can help you avoid added interest and empower you to take action.
If you’re struggling with your credit card balance, here are some tips that may help.
1. Overhaul your budget
Your budget is the foundation of your finances. It’s hard to manage your finances without a blueprint of where money is coming in and going out. If you don’t have a budget, now’s the time to create one. If you already have one, look at it and see where to start making changes.
Look for places to cut back — especially on non-essential purchases like subscriptions or dining out. Consider leaving your credit card at home and sticking to cash or a debit card while you pay down your debt to help you avoid impulse purchases.
2. Shift to a 0% APR card
Some credit cards offer 0% APR for an introductory period on purchases and balance transfers. These offers last a set amount of time, ranging from 12-21 months.
If you have a smaller debt you can pay off in that time frame, consider a balance transfer card. You won’t face added interest charges if you pay off your balance before the introductory period ends.
Most balance transfer cards come with high variable APRs that kick in after the promotional period. So, if you don’t pay off your debt before then, you may wind up paying more than before. That’s why it’s crucial to have a plan to pay off your balance before you open one of these cards.
3. Try the debt avalanche method …
Consider the debt avalanche method if you carry credit card debt and want the most efficient way to pay it off.
This method involves paying off your highest-interest debt first and working toward the lowest-interest debt. Here’s how it works:
- Write down your credit card balances, including amounts, due dates, and interest rates.
- Make all the minimum payments on your credit cards, then put any extra cash toward the credit card with the highest interest.
- Keep doing this until the balance is paid in full. Then, put your extra funds toward the next-highest interest card while still making minimum payments on the rest.
- Do this until all of your credit cards are paid off.
4. The debt snowball method
While the debt avalanche method is the most efficient way to pay off your debt (saving you the most on interest charges), it may be harder to stick to.
On the other hand, the debt snowball method focuses on paying down the card with the lowest balance first. This can help you build motivation by settling your smaller debts faster. To do so:
- You’ll write out all your credit card balances and then make minimum payments on all your cards.
- Put any extra funds toward the debt with the lowest balance.
- Do this until your balance is paid in full, and then move on to the next-smallest amount.
- Continue until all of your cards are paid off.
Both the debt snowball and the debt avalanche methods can be used for more than just credit cards. You can use these methods for any outstanding debt, whether an auto loan, student loan, personal loan, or even your mortgage.
5. Try debt consolidation
Debt consolidation combines multiple high-interest debts into one single payment. This simplifies payments and can save substantially on interest costs over time. Personal loans and balance transfer cards are two standard consolidation tools.
In most cases, debt consolidation loans have lower interest rates than credit cards. So, while you’ll pay interest, it’s usually less than what you pay on your credit cards.
Credit card interest rates are variable, so they fluctuate based on market conditions. Personal loans often come with fixed interest rates, so the rate doesn’t change for the life of the loan.
While you might qualify for a personal loan with fair or even bad credit, compare your potential interest rate to what you’re paying now. If you get a quote higher than your current rates, getting a debt consolidation loan may not be worth it.
The bottom line
Credit card debt is detrimental — it often feels impossible to repay. With credit card debt rising nationwide, many may feel like they’re never catching up.
You can tackle credit card debt in a few ways, and in some cases, a couple of different methods at once might work. Don’t be afraid to look into alternative methods until you find the right one that fits you best.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.