14 April 2024

Tips for Getting Out of Credit Card Debt

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Credit cards are a way of life for Americans in general — and Coloradans in particular. According to one recent study, Colorado residents have the second highest median credit card debt in the country, behind only Alaska.

But while Coloradans may have slightly more credit card debt than the average American, it’s only a difference of degree. A recent study from Inside 1031 found that over half of all Americans (55%) carry a credit card balance from month to month, and that since the beginning of the pandemic in March 2020, 44% of Americans have taken on more credit card debt.

Worse yet, a lot of these debtors are carrying this high interest debt for years or even decades. According to the survey, 40% of credit card debtors haven’t been debt-free since before 2018 — and 15% say they’ve been carrying debt since before 2006. That kind of long-term indebtedness is a tightrope act; more than half of American credit card debtors (57%) have missed at least one credit card payment, with 31% missing a payment in 2021. From there, it’s a short distance to default, bankruptcy, divorce, or even selling your home for cash to pay off debts.

So how do you get out of credit card debt? It’s not as hard as it may sound, but it takes honesty, discipline, and a good plan. Here are some tips to get out from under your credit card debt, no matter how much it is.

Figure out where you stand  

Before you can tackle your credit card debt, you have to figure out how much debt you have. 

 Put together a list of all your credit cards, the balance you’re carrying on each card, and the annual percentage rate (APR) on each card. It can also be helpful to organize your list from highest APR to lowest APR, so you know which debts are charging you more interest.

Total up all your balances: This is your target number.

Analyze your spending  

Next, you want to figure out where all your money is going.

Look over several months of your financial statements to get an idea of your expenses. You’ll want to split them into two groups: necessary expenses and unnecessary ones.

In the first group, you’ll put expenses such as rent, groceries, utilities, and debt payments, including student loans. These are vital, non-negotiable costs, but some, such as debt payments and student loans, can be consolidated.

In the second group, you should include things you can live without — unused gym memberships, entertainment subscription services, meal deliveries, etc. You’ll want to eliminate as many of these as you can. Start with expenses that you don’t use or don’t provide great value. Don’t overlook small, recurring charges, especially ones that are automatically billed. These can add up to a lot of savings if you cut enough of them.

Try to be as objective here as possible; every dollar you cut from your budget now is a dollar you can allocate toward paying down your credit card debt.

Make a budget — and stick to it  

Once you’ve figured out your income and your expenses, it’s time to put together a budget. A budget will formalize all your expenditures and protect you from extraneous spending.

Be strict with yourself, but be realistic — build in a little wiggle room for small unforeseen expenses and the occasional impulse buy. You want to write a budget that you can stick to long-term, not a punitive one you’ll burn out on after a month.

As you work on a budget, also explore ways to increase your income. The more money you can bring in, the more you can throw at your debts. This could include a part-time job or even using apps to make money.

Choose a debt reduction strategy  

Experts recommend these three strategies to systematically pay down your debt: the snowball method, the avalanche method, and the blizzard method.

The snowball method was popularized by Dave Ramsey and calls for you to pay off your smallest debt first and then proceed to the next-smallest, and so on, until you’ve paid off all your debt.

A big advantage of this approach is the psychological satisfaction you get from paying off a debt completely. Once you taste that feeling, it’ll serve to motivate you even more.

The avalanche method calls for you to pay off the balances with the highest interest rates first. While you’re concentrating on your high-interest debts, you’ll make minimum payments on the rest of your debts.

Once you’ve eliminated your debt with the highest APR, you’ll allocate that same amount of money to pay off the debt with the second-highest APR, and so on.  

The big advantage to this is that it’ll save you the most money in the long run, since you’re tackling the most rapidly growing debts first.

 The blizzard method is a hybrid of the avalanche and snowball methods. Using the blizzard method, you’ll first pay off your smallest debt and then move on to your debt with the highest APR. 

The advantage of this approach is that you get to have the quick win of completely wiping your smallest debt off the slate before tackling your most expensive debt. 

Consider a balance transfer  

If you’re paying off several cards, you may want to consider transferring all your balances onto a single balance transfer card. Many balance transfer cards come with a low or even zero interest rate for an introductory period, so not only is it more convenient than paying off several separate accounts, you’ll also save money.

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