When you are inside credit card debt, you are not alone. The average American has $ 6,194 in debt – and that number is rising 3 percent each year, according to an average Experian. However, in addition to lowering your score, being in debt can expose you to higher fees, limit your ability to be approved for future loans, and even have legal ramifications.
Below are some best practices to help you get out of your credit card debt and strategies for staying out of debt once you pay it off. With the help of these suggestions, you should be able to start planning your repayment strategy.
How to Pay Off Credit Card Debt
Pay as much as possible every month
While making the minimum payment is all you need to do to stay up to date with the card, paying as much as possible every month is the best way to pay off debt. You can get a credit card calculator to see the difference a larger payment makes.
For example, say you have $ 5,000 on credit card debt with an interest rate of 18 percent. If you only make the minimum payment of $ 125 per month, it will take 62 months to get rid of your debt and pay $ 2,693 in interest. However, if you increase your monthly payment to $ 300, you can be out of debt in 20 months and pay only $ 797 in interest.
Get a personal loan
If your debt comes from multiple cards, you can get one personal loan for debt consolidation. By paying off all of your cards with a loan, you ensure that you only have to focus on one payment per month and worry about only one interest rate.
Use a balance transfer card
If you have a good or excellent card score, you may be eligible for a balance transfer card. You can use this type of card to transfer all of your funds in one place, meaning you only have to pay once a month. In addition, some balance transfer cards even offer an introductory interest rate of 0 percent. However, keep in mind that you usually can’t transfer balances between cards from the same issuer.
How to Stay Out of Debt
Once you know how to get out of debt, it’s important to change your habits so you don’t rebalance. Here are some suggestions to help you stay in the black:
Build up your savings
When you’re out of debt, consider contributing to your savings on a regular basis. Some have savings helps you to feel prepared for unforeseen expenses such as car breakdown or medical debts. It can also help you pay off your credit card balance in full each month and increase your score.
Limit the use of your card
If you have a tendency to create credit card debt, you may want to limit how much you use your cards. Paying in cash or using a debit card for everyday expenses can be an effective way to avoid overspending.