Most people recognize that spending more than they earn isn’t sustainable, yet credit cards can make it easy to carry balances over time.
Credit card debt can accumulate gradually, especially during periods of economic strength when spending tends to increase. In May 2019, the Federal Reserve Bank of New York reported that total household debt had risen for the 19th consecutive quarter. Payment delinquencies increased among both younger consumers under 30 and retirees. More than half of Americans have at least one credit card, and average balances were reported to be over $6,000 at that time.
Where to Start?
Facing significant credit card debt can feel overwhelming, particularly if you’re carrying balances across multiple accounts. Understanding your options and common strategies people use to manage debt can help you develop an approach that fits your situation.
Plan Your Approach
Creating a plan can help keep your efforts organized and make progress easier to track. Start by listing each account with a balance, along with its interest rate (APR) and required minimum payment.
Pay More Than the Minimum
Paying only the minimum amount due can slow progress significantly. Minimum payments are often calculated as a small percentage of the balance—commonly around 2–3%—and may largely go toward interest rather than reducing the principal. Paying more than the minimum, when possible, can help reduce balances faster and lower total interest paid over time.
If you can cover the minimums on all accounts, you may choose to direct any additional funds toward one balance at a time. Two common strategies are often discussed.
Order Your Balances and Focus on One
After listing your accounts, you can organize them either by balance (from lowest to highest) or by interest rate (from highest to lowest).
The snowball method focuses on paying off the smallest balance first. Eliminating one balance early can provide a sense of progress that may help some people stay motivated. This approach may result in paying more interest overall, but some find it easier to maintain.
The avalanche method prioritizes the balance with the highest interest rate. This approach can reduce total interest paid over time, though it may take longer to see the first account reach zero if the highest-rate balance is large. This strategy may work well for those comfortable with longer timelines before seeing milestones.
Automate Your Payments
Many credit card issuers allow automatic payments to ensure at least the minimum amount is paid on time, which can help avoid late fees and additional charges.
You can also use your bank’s bill pay feature to send recurring payments, though it’s important to ensure the amount covers the required minimum, which can change. If you avoid adding new charges while paying down balances, minimum payments may decrease over time, allowing fixed payments to reduce balances more quickly.
Making Additional Payments
You don’t need to wait for a statement to make a payment. Applying extra funds when available can lower your average daily balance, which may reduce interest charges and support faster repayment.
Negotiate With Your Creditor
In some cases, creditors may be willing to discuss adjustments such as a lower interest rate or modified payment terms. Outcomes vary, but explaining your situation and asking about options may be worth considering. There’s no guarantee of success, but asking typically carries little downside.
Other Ways Out
If meeting minimum payments isn’t possible, additional support options may be available. These approaches often involve fees and can affect your credit, but may be preferable to continued delinquency.
Debt Management Plans
Nonprofit credit counseling agencies may help negotiate interest rates or consolidate payments. Fees may apply, and accounts are often closed during the program. Payment plans are structured to be manageable, but missing payments can have consequences, so it’s important to understand all terms.
Debt Settlement
Debt settlement involves working with a company to negotiate a reduced payoff amount. This option carries risks, including fees, credit impact, and potential tax consequences if forgiven debt is treated as taxable income.
Bankruptcy
As a last resort, some people consider filing for bankruptcy. Bankruptcy can discharge certain debts but has serious and long-lasting effects on credit and financial options. It’s typically considered only after other options have been explored.
The Benefits
For those who are able to gradually reduce and manage their debt, the process can offer financial relief and valuable lessons about spending, saving, and credit use over time.