9/30/2020 | By Team United
Here’s a sobering fact —more than half of U.S. adults had credit card debt in 2020. The Federal Reserve Bank reports that in 2020, Americans owed around $1 trillion in credit card debt with the average household owing around $8,000 on credit cards. If you find yourself in that situation, don’t feel bad — here are four smart steps you can take now to help you pay off credit card debt.
The first step you should take is to consolidate credit card debt. That basically means combining multiple balances onto one, low-interest loan or credit card. United Federal Credit Union’s U First Visa® credit card allows you to transfer balances from other high-rate cards onto one card with introductory rates as low as 0% APR for six months. Why is this helpful? Well, the benefits of consolidating debt include:
By reducing your interest rate through consolidation, you can pay more toward the principal balance each month, and might even be able to reduce minimum payment amounts. Debt consolidation can be an excellent and multipurpose financial strategy but only if you discipline yourself not to accumulate more debt.
It might seem like a no-brainer, but one of the easiest ways to help reduce your credit card debt and pay them off faster is to stop using them for purchases. This could mean not charging large expenses like vacations or holiday gifts, to even finding enough cash to pay for gas, dinners, or any other day-to-day purchases that might rack up your credit card balance.
According to the most recent Purchasing Power® Financial Stress Survey conducted by Harris Poll, one of the main causes of financial stress is high balance credit cards. But a high balance is only part of the equation. A high interest rate, even on low-balance credit cards, can prove costly and keep you from paying off debt. One smart strategy is to pay the minimum balance on each of your credit cards, and pay any extra on your highest interest credit card. By doing this, more of your payment will impact the principal balance, reducing the overall amount owed. Repeat this strategy as you work to eliminate the high interest cards in your wallet.
You might be asking “what is a financial plan?” While it sounds like you need a finance degree to figure this out, that’s not the case. Creating your own financial plan can be really easy. Start by writing out a budget. This will help you stay on task by visually showing where you are spending your money. Check in on your budget each month, and make adjustments when needed.
Next, create a plan for consolidating your debt (as mentioned in step 1). Identify which credit card has the highest interest rate, which one has the highest balance, and which one you might be able to take care of easily using the Snowball Method. By writing out your budget and your plan for paying off credit card debt, you will improve your chances of success.
Once you’ve tackled your credit card debt, focus on staying that way. Make a plan to live within your means and try to use credit cards less often by using cash or debit card more frequently. Even when your credit card is paid off, keep the account open but don’t use the card as much. Having a paid off credit card will help your credit utilization ratio which plays a big role in how your credit score is calculated.