There’s nothing quite like the feeling of having your credit card balance paid in full. It’s like a breath of fresh air, a surge of pride, and a huge sigh of relief all rolled into one. But Americans have an on-going love affair with plastic.
Collectively we hold more than $1 trillion in credit card debt. When it comes to getting rid of credit card debt, baby steps can lead to big victories—even the possibility of getting those credit cards paid off in 2020.
To be clear, we’re not talking about being completely debt-free in 2020. Depending on how much you owe on all your debt in total, that could be a longer journey. But targeting your credit card debt can be a smart first-step since credit card debt can sometimes come with a high interest rate.
We’ve put together eight common strategies for how to get rid of credit card debt. But first, you’ll need to get your head in the game. Unless you suddenly receive an inheritance or win the powerball, unloading debt can be challenging.
If you truly want to try and eliminate credit card debt in the new year, it’s going to require a lot of budgeting, discipline, and will-power. You’ll likely have to make sacrifices and compromises. But if you can keep your eye on the prize, next year you could be looking at a nice, round zero.
1. Limit Your Use of Credit
No strategy for how to crush credit card debt is going to work if you continue to rely heavily on your credit cards. Pick one card to keep—ideally, one with good terms, like a low interest rate or a great rewards program —and put the rest away.
You can store them in a safe place or even cut them up so you’re not tempted to use them. If the card doesn’t carry a large annual fee, consider not canceling your credit card account, since losing that cards credit history or percentage of credit utilization could possibly have an affect on your credit score.
2. Take a Hard Look at Your Spending
Go through last month’s bank and credit card statements and add up all the money you spent eating out, or shopping for non-essentials. You may be surprised at what you find.
Review your spending closely and see if there is any room for you to cut back on unnecessary expenses. Then, create a budget that’s completely within your means.
The goal is to cut back on your discretionary spending so you can focus additional funds on paying off your credit card debt. Take a look at our tips for creating a better budget. Building a workable budget is one of the first steps in tackling your debt.
3. Create a Debt-Repayment Strategy and Stick to It
There are a few different schools of thought when it comes to eliminating your credit card debt, especially if you have debt spread over multiple credit cards. Regardless of the strategy you choose, make the minimum monthly payments on all of your debts.
One strategy is called the debt avalanche method. Using this method you’ll organize your credit card debt from highest interest rate to lowest interest rate.
Focus your efforts on repaying the debt with the highest interest rate first. Then as you pay off each credit card, you can contribute the money you were contributing to the next debt.
On average, Americans will pay more than $1,000 in interest this year, so tackling the highest interest rate first could be appealing. You can use our credit card interest calculator to see an estimate of how much interest you’ll accrue on your current track.
The other approach suggests you focus on the credit card with the smallest balance first. This is called the debt snowball method. The goal of this strategy is to encourage you to continue your debt repayments. Since you start with the smallest balance, you’ll start seeing the impact of your payments faster.
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6. Transfer to a Balance Transfer Credit Card
This could help you toward your goal of eliminating your credit card debt but in order to do so it will require diligence to avoid common pitfalls.
A balance transfer credit card allows you to open a new low-interest or interest-free credit card and transfer your existing balance from a high-interest credit card, so you can pay off the debt. In theory, paying off the debt should be easier without a high APR.
The introductory APR on low or 0% transfers generally lasts anywhere from six to 18-months, so be sure you understand the terms and conditions. These can be a useful tool if you can repay your debt during the introductory period.
7. Consolidate Your Debt with a Personal Loan
A personal loan won’t eliminate your debt, but it could help you get out of the high-interest credit card game. Instead of a revolving door of debt, you can opt to pay one monthly fixed payment, possibly at a lower interest rate.
8. Pay More than You Owe, More Often than You Owe It
As you work toward paying your credit card debt, consider making more than the monthly minimum payments. This can help you pay off your debt faster and in doing so, could help you reduce the amount of money you spend in interest over the life of the debt. This can be helpful in both the avalanche and snowball methods of debt repayment.
Ready to see how consolidating your credit card debt with a personal loan could help you take control of your finances? SoFi can help. Use our personal loan calculator to compare your current debts with a personal loan.
When you take out a loan with SoFi there are no prepayment penalties or origination fees. You’ll also gain access to a community of like-minded savers.
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