How to Tackle Credit Card Debt for Greater Financial Health

Finances
A middle-aged couple making a purchase with their credit card: credit card debt

Getting out of debt is a little like losing weight. There's no magic pill or secret method to reach your goal — it takes a consistent, sustained effort over an extended period. But like improving your actual health, improving your financial health is easier if you know some effective strategies.

Too many people spin their wheels for years trying to become debt free, not realizing that a few simple changes could help speed up their repayment timeline. If you're struggling to pay off credit card debt, here are some tried and true strategies that could help get you on the right track to better financial health.

Analyze Your Spending

To get out of credit card debt, it could help to find extra money to add to your monthly payments. Examine your bank and credit card statements for the past few months, categorize your expenses and note spending patterns.

Are you spending a lot on takeout every week? Do your monthly subscription services cost more than you realize? Are those morning lattes at the neighborhood coffee shop starting to add up? Even grabbing a snack from the vending machine at work every day could add up to $100 per month — or $1,200 a year!

Once you've figured out what your unnecessary expenses are, decide how much you want to cut back. Ranking them in order from most to least important could help with this.

For example, maybe you don't mind giving up your daily latte, but you'd like to keep a weekly date night with your significant other. Or maybe your social life depends on weekly dinner dates with friends, but you can give up takeout food in favor of cooking at home.

You don't have to be a complete penny-pincher if you're getting out of debt. But the more you give up, the more money you'll have to put toward your debt — the faster you'll pay off the balance. Even a small change, such as bringing your lunch to work a few days a week, can have tremendous results. It's all about figuring out your priorities and cutting out the expenses that don't matter as much.

The Snowball Method

Those who have revolving balances on multiple credit cards could utilize the debt snowball method. According to a 2016 study from the Journal of Consumer Research, people who applied the snowball method to their credit card debt repaid their balance 15 percent faster than those who didn't.

Borrowers who use the snowball method pay off their debt in order from the smallest to largest balance. The theory is that by paying off the smallest amount first, you'll eliminate individual balances quickly and feel more motivated to keep going. Once one balance is paid off, you can add that balance's monthly payment to the next smallest balance.

For example, let's say you have three credit cards: One has a balance of $1,500 and an annual percentage rate (APR) of 25 percent. One has a $500 balance and a 15 percent APR. The last credit card has a $1,000 balance and a 20 percent APR. If you were to pay off your credit cards using the snowball method, you'd focus on the $500 one first—even though it has the smallest interest rate. After you repay that card, you'd move on to the card with the $1,000 balance (and also apply the payment for the $500 balance to the $1,000 balance) and so on.

Consider a Balance Transfer Offer

Look at your credit card statement and find the APR, which shows how much interest you pay every month. The higher your APR, the more time it will take to pay off your credit card debt.

Fortunately, there are credit cards that offer a 0 percent APR for a certain length of time. Consider looking for a credit card with a 0 percent balance transfer interest rate and move your balance to that card. The special offer period can last for as little as six months or as long as two years, depending on the card.

Let's say you have a $3,000 balance on a card with a 17 percent APR and a monthly payment of $200. You could save $291.01 in interest if you transferred the balance to a card with 0 percent APR for 12 months.

Balance transfer offers are generally available to those with average or good credit scores, usually 630 or higher. If you don't qualify for a zero percent offer, you can call your credit card provider and they may be able to work with you to reach a lower rate.

Create a Budget

People who overuse their credit cards often do so because they don't know how much they actually have available to spend each month. If you're flying by the seat of your pants when it comes to spending, consider creating a structured budget that outlines your spending by category.

Go through your current spending and create a list of your general categories, such as groceries, utilities, mortgage or rent payments and so on. Then, allocate a certain amount to each category. You could also assign funds to long-term savings goals, such as your retirement savings or investments. Also, consider giving yourself a buffer in case of unforeseen expenses, such as buying your sister-in-law a baby shower gift or paying for an unexpected car repair.

Having a set budget will help you know when you're overspending — so you don't end up with a credit card bill you can't manage.

If you're getting out of credit card debt, you may or may not be surprised to find that the road to debt freedom is often long. But if you make small changes every day, you can both improve your credit and learn more about handling your finances in general.

IMPORTANT DISCLOSURES

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.

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