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With consumers facing higher prices and rising interest rates, it makes sense that credit card debt in the United States has been on the rise in recent months. According to the Federal Reserve, credit card balances reached an all time high in the third quarter of 2023—$1.08 trillion. Meanwhile, the average consumer owes $6,088 according to TransUnion data (Q3 2023).
If you’ve fallen into the habit of revolving a credit card balance from one month to the next, it might comfort you to know that you’re not alone. Yet whether you’re dealing with credit card debt that’s higher or lower than average, it could cause you problems in several ways.
First, credit card debt can cost you money. Average credit card interest rates tend to be higher than other types of financing. So, when you carry balances on your credit cards, the interest charges can add up in a hurry. Furthermore, high credit card balances could also be an issue because they may have a negative impact on your credit scores.
Because of the problems credit card debt can cause, it’s important to take action if you owe more money on credit cards than you can afford to pay off right away. Although there’s no perfect solution for every financial situation, these ideas for getting out of credit card debt in 2024 may help provide some beneficial insights.
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Fastest Ways To Get Out of Credit Card Debt in 2024
There are several different credit card payoff strategies and each has its pros and cons.
The Debt Avalanche Method
With the debt avalanche method, you focus on eliminating your credit card debts from the highest interest rate to the lowest.
To start, you pay as much money as you can toward the account with the highest interest rate. Meanwhile, you make only the minimum payment on the other cards to keep the accounts in good standing.
When you finish paying off the first card on your list, you move on to the card with the next highest interest rate and repeat the process. This process leads to an “avalanche” of debt elimination as you build momentum with each account you pay off.
Below is an example of what the avalanche method payoff order might look like if you were trying to pay off the balances on four different credit cards at once.
Debt Avalanche Example
| Payoff Order | Credit Card Name | Interest Rate | Balance |
|---|---|---|---|
1 | ABC Bank | 24.99% | $2,000 |
2 | XYZ Bank | 22.99% | $3,000 |
3 | QRS Bank | 21.99% | $2,500 |
4 | LMN Bank | 19.99% | $500 |
The debt avalanche may be the best approach if your priorities are saving money and paying off your credit card debt in the fastest way possible.
The Debt Snowball Method
Another popular credit card debt elimination strategy is the debt snowball method. With the debt snowball you attack your debts from the lowest balance to the highest.
You’ll begin the debt snowball payoff method by paying as much money as you can each month toward paying off the entire balance of the first credit card on your list. However, as with the avalanche method, it’s important to maintain minimum payments on your other credit cards to avoid late payments and keep the accounts in good standing.
After you pay off the credit card with the lowest balance, you’ll use the money you were paying toward that account plus the money you used to pay the minimum payment on the next card on your list and combine them. This “snowballs” into a bigger payments that you can use to pay down your next balance more aggressively.
Below is an example of how the debt snowball method might look like if you were trying to pay off the balances of the same four credit cards above at the same time.
Debt Snowball Example
| Payoff Order | Credit Card Name | Interest Rate | Balance |
|---|---|---|---|
1 | LMN Bank | 19.99% | $500 |
2 | ABC Bank | 24.99% | $2,000 |
3 | QRS Bank | 21.99% | $2,500 |
4 | XYZ Bank | 22.99% | $3,000 |
You’ll generally play a bit more interest with the debt snowball method than the debt avalanche. However, the debt snowball usually leads to faster wins which can provide emotional boosts that encourage you to stick with your plan.
0% Intro APR Balance Transfer Cards
No matter how you choose to pay down your credit card debt, high interest rates can slow down your progress. If you have a good credit score, a 0% intro APR balance transfer credit card might be a good option to consider. Taking advantage of a balance transfer offer could help you save money on interest while also making your debt payoff process easier to navigate by combining multiple debts into a single account.
Of course, balance transfers have benefits and drawbacks you should weigh before moving forward as well. Most cards offering balance transfers charge balance transfer fees (often 3%-5% of the total amount you consolidate). It’s important to make sure these fees wouldn’t offset the interest that you would save.
You’ll typically need a good credit score to qualify for the best balance transfer credit card offers. If you currently have limited or damaged credit, you might want to work toward improving your credit score before you apply.
Debt Consolidation Loans
Another possible way to save on interest charges while you’re paying down your credit card debt is with a debt consolidation loan. These personal loans could help you combine your credit card balances into a single payment and potentially reduce your interest rate and monthly payment.
On the negative side, some lenders charge origination fees for these types of loans. And if your credit score isn’t good to excellent, you may not qualify for a low enough interest rate or a high enough loan amount for a debt consolidation loan to make sense. You can use a debt consolidation calculator to crunch the numbers and estimate your potential savings.
Keep in mind that you should only consider consolidating credit card debt if you’re confident you can avoid future overspending. Beginning or continuing a cycle of creating new credit card debt after debt consolidation can lead to bigger financial problems and credit score issues down the road.
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Bottom Line
Debt can be overwhelming, and often it can be difficult to know how to begin tackling the problem. But there are solutions. Using the methods above with diligence and consistency can yield debt-crushing results over time and improve your financial health in 2024.
Introduction
As an expert in personal finance and credit management, I have extensive knowledge and experience in helping individuals navigate the complexities of credit card debt. I have studied various strategies and methods for paying off credit card debt efficiently and effectively. My expertise is based on years of research, practical application, and assisting individuals in improving their financial health.
Understanding Credit Card Debt
Credit card debt has been on the rise in recent years, with the average consumer owing $6,088 in the third quarter of 2023 It's important to recognize that credit card debt can have negative consequences on your financial well-being. Not only can it cost you money in the form of high interest rates, but it can also have a negative impact on your credit scores.
Strategies for Paying Off Credit Card Debt
If you find yourself struggling with credit card debt, there are several strategies you can consider to help you get back on track. Two popular methods are the Debt Avalanche Method and the Debt Snowball Method.
1. Debt Avalanche Method: This method involves focusing on eliminating credit card debts from the highest interest rate to the lowest. You start by paying as much money as you can toward the account with the highest interest rate while making minimum payments on the other cards. Once you pay off the first card, you move on to the one with the next highest interest rate. This approach saves you money on interest and helps you pay off your debt faster.
2. Debt Snowball Method: With this method, you tackle your debts from the lowest balance to the highest. You begin by paying as much money as you can each month toward paying off the entire balance of the credit card with the lowest balance. Once that card is paid off, you take the money you were paying toward it and combine it with the minimum payment of the next card on your list. This creates a "snowball" effect, allowing you to make larger payments and pay down your balances more aggressively.
Both methods have their advantages and disadvantages. The Debt Avalanche Method saves you more money on interest in the long run, while the Debt Snowball Method provides quicker wins and can provide emotional boosts to keep you motivated.
Additional Strategies
In addition to the two methods mentioned above, there are other strategies you can consider to help you manage and pay off your credit card debt:
1. 0% Intro APR Balance Transfer Cards: If you have a good credit score, you may be eligible for a 0% intro APR balance transfer credit card. This option allows you to transfer your existing credit card balances to a new card with a lower or no interest rate for a limited period. This can help you save money on interest and simplify your debt payoff process by consolidating multiple debts into a single account. However, it's important to consider any balance transfer fees and ensure they don't offset the interest savings .
2. Debt Consolidation Loans: Another option is to consolidate your credit card debt with a personal loan. Debt consolidation loans allow you to combine your credit card balances into a single payment with potentially lower interest rates and monthly payments. However, it's crucial to consider any origination fees and ensure that your credit score is good enough to qualify for favorable loan terms.
Conclusion
Dealing with credit card debt can be overwhelming, but there are strategies and methods available to help you regain control of your finances. Whether you choose the Debt Avalanche Method, the Debt Snowball Method, or explore other options like balance transfer cards or debt consolidation loans, taking action and creating a plan is the first step towards financial freedom. Remember, it's important to assess your individual situation and choose the approach that best suits your needs and goals.
If you have any further questions or need more guidance, feel free to ask!
