Updated November 4, 2019 . AmFam Team
If you’re carrying credit card debt, you’re not alone. Millennials in the U.S. have an average of $4,712 each in credit card debt. When used the right way, credit cards can be a useful financial tool. But when debt starts to pile up, people often find it harder to pursue their dreams, like owning a home or starting a business. Successfully paying off credit card debt takes hands-on planning and commitment. Read our tips on how to get started down the right path.
Tackling your credit card debt takes persistence, patience and time. Rome wasn’t built in a day, so your debt won’t be erased overnight. But taking small steps can lead to a big payoff in the end.
Setting up a concrete goal (“I want to be debt-free by this time next year”) will help keep you, and your debt, in check. There are lots of ways to go about eliminating your credit card debt:
Pay more than the minimum. Credit card issuers set a monthly minimum payment, usually based on a percent of your total balance. While it can be tempting to pay only this amount, these odds are stacked in the bank’s favor. Banks make money on the interest they charge you to carry that balance each month, so your $5 cup of coffee costs much more in the long term. Paying even just a little more than the minimum will help you get closer to debt-free.
Try the snowball method. This strategy gives you quick short-term victories. The Snowball Method (Opens in a new tab)prioritizes paying your loans by their amount — smallest to largest. You pay the minimum on all of your debt, focusing your efforts on the loan with the smallest amount. When you’ve paid that one off, you focus on the next smallest loan. Like a snowball rolling down a hill, you’ll make bigger and bigger payments over time until your debt is gone.
The avalanche approach. Another way to tackle debt is the avalanche approach (Opens in a new tab). Rather than paying off your smallest debt first, you’ll focus on the card with the highest interest rate. Crunching the numbers, this strategy is more likely to help you pay off debts more quickly and save the most money on interest charges.
Automate payments. Make sure you don’t accidentally miss a monthly payment to avoid extra late fees. You can set up automatic payments through your bank account, and check out our student loan payment tracker.
There are two basic ways to get out of debt: paying off loans and increasing your income. But be careful not to spend that extra money to create more debt. Put it toward paying off your balances, and you’ll be in good shape.
Side hustle. Use your skills to freelance outside of your regular work hours to bring in extra income. You’ll be in good company — an estimated 57.3 million Americans are freelancing (Opens in a new tab) (36% of the total workforce).
Get training. Looking to break into a new line of work? Find out what skills you’ll need to do the job, and seek out training to help you up your game.
Take a look at your career path. How do you see your life unfolding in a year? In five years? Take a look at your professional career to see if it’s a good fit for your dreams. If not, it might be time to make a change. Finding the right job doesn’t happen overnight, but it’s well worth the effort.
When you have good credit but a lot of different credit cards to handle, consider consolidating your debt into one (preferably lower-interest) account. That way, you only have to focus on paying off one credit card.
If the amount you owe each month is more than you can possibly make, it might be time to look for help. Consider debt relief options such as debt settlement or a debt management plan. Typically, you’d work with a credit counseling agency to negotiate with your creditors.
If you're just starting out in life and big goals like owning a new car, renting a nice place or owning a cozy home, one thing is certain: you'll need to build credit. A good credit score will help you save money, get lower interest rates, and give you a better chance for loan approvals. Check out our tips for improving your credit score.
Credit card debt can be a lot to handle. By starting small and taking daily actions to save and pay back debt, you’ll be one step closer to improving your credit and getting out of credit card debt. Keeping your financial identity protected is one good way to make sure you dreams stay on track. Take a look at our Credit Theft Protection and Monitoring coverage, and protect what matters most.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.