(NewsNation) — Total credit card debt in the U.S. rose $21 billion in the third quarter of this year, new research from WalletHub reveals.
Though that sounds like a lot of money, it’s less than the amount of credit card debt during the same time last year and in 2022.
Debt fluctuates with the economy, but in general, Americans rely on credit cards far more now than they did decades ago.
“Consumers kind of love affair and dependence on credit card debt hasn’t really gone anywhere,” said John Kiernan, managing editor of WalletHub, a financial services company. “Sometimes it’s flagged a little bit out of necessity and consumers don’t really have a choice to add on more debt when credit dries up, but it’s kind of been a fact of life for a long time.”
The average credit card debt per American household is $10,870, as of October, according to WalletHub’s Credit Card Debt Study released Dec. 6.
“It’s hard to get out of debt when you’re paying interest of 25 or 30%, which some credit cards charge,” Kiernan told NewsNation. “Beyond that, it’s a lot of people not having budgets for one thing and kind of consistently spending beyond their needs. With social media people trying to keep up with the Joneses, it leads to a lot of overconsumption.”
Getting out of that hole can be difficult, but it is possible. Here are some ways to try to get out of debt.
Calculate your total debt and create a repayment plan
Getting out of debt starts with the basics: calculate how much you owe, determine how much of your income you can dedicate toward repayment and build a month-by-month plan.
Be sure to identify the interest rates for each credit card. If one has an especially high interest rate, you may want to consider paying this one off first.
“If you have three different credit cards, one has a 30% APR (annual percentage rate), one is 20 and one is 15, you’d want to focus on paying off the 30% APR balance first because it’s the most expensive,” Kiernan said.
This is called the avalanche method in which you contribute more monthly to one card while making the minimum monthly payment on the others.
“Then once you’re out of payoff on your most expensive debt, you move onto the next one,” Kiernan said.
Separate expenses by card
Dedicate one card to new expenses and another card for debt repayment. This is called the island approach.
“Everyone has everyday expenses that they should hopefully be able to pay in full every month ideally, (so) you put those on one credit card and have another card for paying off your balance,” Kiernan said. “Separating your everyday purchases from ongoing debt reduces your interest charge.”
You may want to consider opening a balance transfer card to attain a temporary period of no interest.
Consider a balance transfer
A balance transfer is a refinancing method that allows you to move debt from a high-interest credit card to a new card with a lower rate, often a 0% interest rate for a temporary time.
Balance transfer cards often offer a 0% interest rate for 12 or upward of 21 months, which allows you to pay back your debt interest-free. Instead of paying multiple balances to multiple creditors in one month, often across different due dates, you will have to pay back only one creditor under this debt consolidation. Be sure to always make the minimum monthly payment on time.
This “helps you pay off your debt faster,” Kiernan said.
“You’ll have to pay a 3% balance transfer fee, but 3% is a lot less than the credit card interest rates and most people are paying,” he continued, “and if you can get almost two years without interest, that makes it way easier to pay off what you owe.”
This method is best suited for people with a credit score above 700, but people with lower credit scores can consider a debt consolidation loan.
With this method, you can take out a personal loan to pay off your other debt, and then you will be responsible for making payments on only the new loan you took out.
“You won’t get a 0% rate this way, but you should be able to get a lower interest rate … and it might be a little bit easier to get approved for a decent personal loan than (a balance transfer,” Kiernan said.
Beyond that, people with lower credit scores should focus on improving their credit by making monthly on-time payments, reducing their credit usage and implementing strategic budgeting, according to WalletHub.
Build an emergency savings fund
It may sound counterintuitive to allocate money toward an emergency savings fund when you’re trying to get out of debt, but it can help in the long run.
“A lot of people don’t have money saved up for unexpected expenses emergencies, and that’s really problematic as it relates to paying off debt,” Kiernan said, “because you could scratch and claw to get yourself out of credit card debt but if you don’t have that safety net, you’re only one car breakdown or other expensive cost away from being right back in debt.”
WalletHub recommends starting by saving up a few months of income. A carefully reviewed budget can help you determine how much you can save in addition to paying the minimum monthly payment for each debt.