The hidden impact of credit card debt.
According to BankRate.com, nearly 1 in 2 credit card holders carry a balance from month to month.
Carrying credit card debt incurs a huge cost to consumers and unfortunately, it can easily lead to trouble. It’s easy to rack up large balances on multiple cards and suddenly struggle to keep up with the payments.
Knowing the difference between good debt and bad debt is the first step toward taking control. Mortgages and student loans, which often feature variable rates, are typically seen as good debt because they help you build personal value - whether through owning a home or gaining an education that can lead to better job opportunities and career growth. Credit card debt, on the other hand, often falls into the “bad” category of debt due to high and fluctuating interest rates, which can make repayment more difficult. With the right plan in place, you can turn your financial situation around and even start saving.
Strategies for managing credit card debt
Here are a few practical steps to get you started:
1. Reach out directly to creditors.
Contact the financial institutions where you have high-balance credit cards. By explaining your situation to them, you may be able to negotiate lower interest rates or better terms to help you save money.
- Ask if any applicable annual fees, late fees, or balance transfer fees can be reduced or waived to help lower your costs.
- Request a higher credit limit to improve your credit utilization ratio and potentially boost your credit score.
- If you need flexibility with payments, ask about creating a custom payment plan, such as adjusting due dates or extending repayment terms to fit your situation.
- Check if you qualify for any rewards programs or cashback offers that you are currently not utilizing.
- Ask for confirmation of these account changes in writing so you have documentation in hand.
- Monitor your account regularly to make sure that all the items you discussed are applied correctly and working for you.
2. Set a strict budget and stick with it.
Track your spending to make sure that you are allocating enough towards your debt and regular expenses each month. There will be more on this in a future chapter.
3. Limit your credit card usage.
Try using cash or your debit card for everyday purchases. In the words of a well-known finance leader, “If you can’t pay cash, don’t buy it.” Avoid any frivolous spending and concentrate on paying down your debt each month.
4. Create a repayment plan.
Prioritize high-interest cards and automate payments, when possible, to minimize long-term costs and avoid late fees.
5. Pay more than the minimum.
When you make a payment for more than the minimum, you can significantly reduce the amount of interest owed over time. Check where you can reduce other expenses or consider adding a side hustle to help manage larger monthly payments.
6. Research consolidating your credit card debt.
Consider transferring high balances to a lower-interest credit card or look into a personal loan to help consolidate your debt. Be sure to check if there is a balance transfer fee and do the math to ensure it is the right move for you.
7. Use our debt consolidation calculator below
See where you stand and if it makes sense to consolidate your debts into a single monthly payment.
