Paying down credit card debt is a major concern in many American families. According to Cardweb.com, the average family with credit cards carries about $9,000 in credit card debt. While many families manage that debt well by paying off credit card balances in a timely manner, many others are drowning in debt that eats up a large percentage of their monthly income.
For those families, living debt-free is a dream that will never come true as long as they are paying the minimum monthly payment on their credit cards. The only way to eliminate credit card debt is to tighten up the proverbial belt and pay more than the minimum monthly payment. It's not enough to just start paying a little extra here and there on your credit card balances, though. Paying off credit cards once and for all requires a targeted plan to knock out the debts in a systematic way. Here are five ways to tackle credit card debt and cut it down to size.
Transfer Balances to Lower Interest Credit Cards
Evaluate what each credit card is costing you in interest each year, then figure out how much it will cost to transfer balances from high cost cards to lower interest credit cards. Be sure to take any restrictions and balance transfer fees into account when making calculations, but if the numbers are right, transferring balances to lower interest credit cards could save as much as $5,000 a year.
Pay Off High Interest Credit Cards with a Snowball
Calculate which credit card has the highest effective interest rate and target that one first. Figure out the total amount available to pay on all the credit cards combined. Pay the minimum monthly amount on all credit cards except the one with the highest interest rate. Put the rest of the monthly credit card budget toward that one card until it is completely paid off. When that credit card is cleared, move to the next highest interest credit card.
Pick Off the Lowest Balance Credit Cards
Attack credit card debt from the bottom up with the Stepladder Method to eliminate credit card debt. It works just like the Snowball method, but starts with the credit card that will be easiest and quickest to pay off. Pay the minimum monthly payment on all credit cards except the one with the lowest outstanding balance. Once that card is paid off, apply the payment freed up to the next highest card and so on up the ladder.
Pay Off Credit Cards with a Debt Consolidation Loan
In some cases, it makes more sense to roll all of the credit card balances into one low interest loan and pay just one monthly payment. In most cases, a personal or home equity loan will carry a far lower interest rate than even the lowest interest revolving credit cards, and will have a fixed term. The biggest drawback to paying off credit cards with a debt consolidation loan is the temptation to build the credit card balances back up.
Double Up On Minimum Monthly Payments to Wipe Out Credit Card Debt
For those only carrying debt on one or two credit cards, paying double the monthly minimum on each card is the fastest way to pay down credit card debt. The minimum monthly payment generally will only cover the interest due. Doubling the minimum monthly payment will often pay off credit card debt far more than twice as fast as paying just the minimum.
Deb Powers - Deb Powers is a published poet and author who draws on her extensive life experience and research expertise to write on a wide variety of ...
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