The Federal Reserve reports that credit card debt has topped $1 billion in the United States, and personal finance website WalletHub says 67 million Americans are likely to have difficulty paying their credit card bills as a result of the current pandemic.
NerdWallet says U.S. households owe an average of $7,000 in revolving credit while interest rates are near record highs, meaning many people pay about $1,100 in interest payments per year. But there are steps you can take to whittle away that debt.
Choose a payment strategy
Depending upon your ability to pay, different methods can be effective in addressing credit card debt, such as:
- Maximize monthly payments: Paying more than the minimum amount each month reduces interest charges
- Debt snowball: Start with the card with the smallest balance and pay it off, then move on to the next highest amount to achieve a sense of accomplishment
- Debt avalanche: In this method, you pay off the card with the highest balance first and work your way towards the lowest balance
- Automate payments: Setting up a higher automatic monthly payment can help pay off your balance faster and ensure you make payments on time
Consider debt consolidation
If your credit card balance is overwhelming, consider transferring all the amount owed to another card that offers a 0% introductory period – ideally 15 to 18 months – where you will have one payment each month and not pay additional interest.
It may also be advisable to consider a fixed-rate debt consolidation loan to pay off your outstanding balances. Although you are charged interest on these loans, it will typically be much lower than on credit cards, and that can help save money.
Consider Chapter 7 or Chapter 13 bankruptcy
While many people avoid filing for bankruptcy, it can be the best strategy to address massive credit card debt and restore your financial freedom. Chapter 7 can wipe out all unsecured debt, while Chapter 13 can restructure payments over three to five years.
While bankruptcy can affect your credit for several years, it may be the best option to take care of debt you accrue due to no fault of your own, such as massive medical bills or losing your job. An experienced bankruptcy attorney here in Maryland can help you find the best strategy for your situation.