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With consumers facing higher prices and rising interest rates, it makes sense that credit card debt in the United States has been on the rise in recent months. According to the Federal Reserve, credit card balances reached an all time high in the third quarter of 2023—$1.08 trillion. Meanwhile, the average consumer owes $6,088 according to TransUnion data (Q3 2023).
If you’ve fallen into the habit of revolving a credit card balance from one month to the next, it might comfort you to know that you’re not alone. Yet whether you’re dealing with credit card debt that’s higher or lower than average, it could cause you problems in several ways.
First, credit card debt can cost you money. Average credit card interest rates tend to be higher than other types of financing. So, when you carry balances on your credit cards, the interest charges can add up in a hurry. Furthermore, high credit card balances could also be an issue because they may have a negative impact on your credit scores.
Because of the problems credit card debt can cause, it’s important to take action if you owe more money on credit cards than you can afford to pay off right away. Although there’s no perfect solution for every financial situation, these ideas for getting out of credit card debt in 2024 may help provide some beneficial insights.
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Fastest Ways To Get Out of Credit Card Debt in 2024
There are several different credit card payoff strategies and each has its pros and cons.
The Debt Avalanche Method
With the debt avalanche method, you focus on eliminating your credit card debts from the highest interest rate to the lowest.
To start, you pay as much money as you can toward the account with the highest interest rate. Meanwhile, you make only the minimum payment on the other cards to keep the accounts in good standing.
When you finish paying off the first card on your list, you move on to the card with the next highest interest rate and repeat the process. This process leads to an “avalanche” of debt elimination as you build momentum with each account you pay off.
Below is an example of what the avalanche method payoff order might look like if you were trying to pay off the balances on four different credit cards at once.
Debt Avalanche Example
|Credit Card Name
The debt avalanche may be the best approach if your priorities are saving money and paying off your credit card debt in the fastest way possible.
The Debt Snowball Method
Another popular credit card debt elimination strategy is the debt snowball method. With the debt snowball you attack your debts from the lowest balance to the highest.
You’ll begin the debt snowball payoff method by paying as much money as you can each month toward paying off the entire balance of the first credit card on your list. However, as with the avalanche method, it’s important to maintain minimum payments on your other credit cards to avoid late payments and keep the accounts in good standing.
After you pay off the credit card with the lowest balance, you’ll use the money you were paying toward that account plus the money you used to pay the minimum payment on the next card on your list and combine them. This “snowballs” into a bigger payments that you can use to pay down your next balance more aggressively.
Below is an example of how the debt snowball method might look like if you were trying to pay off the balances of the same four credit cards above at the same time.
Debt Snowball Example
|Credit Card Name
You’ll generally play a bit more interest with the debt snowball method than the debt avalanche. However, the debt snowball usually leads to faster wins which can provide emotional boosts that encourage you to stick with your plan.
0% Intro APR Balance Transfer Cards
No matter how you choose to pay down your credit card debt, high interest rates can slow down your progress. If you have a good credit score, a 0% intro APR balance transfer credit card might be a good option to consider. Taking advantage of a balance transfer offer could help you save money on interest while also making your debt payoff process easier to navigate by combining multiple debts into a single account.
Of course, balance transfers have benefits and drawbacks you should weigh before moving forward as well. Most cards offering balance transfers charge balance transfer fees (often 3%-5% of the total amount you consolidate). It’s important to make sure these fees wouldn’t offset the interest that you would save.
You’ll typically need a good credit score to qualify for the best balance transfer credit card offers. If you currently have limited or damaged credit, you might want to work toward improving your credit score before you apply.
Debt Consolidation Loans
Another possible way to save on interest charges while you’re paying down your credit card debt is with a debt consolidation loan. These personal loans could help you combine your credit card balances into a single payment and potentially reduce your interest rate and monthly payment.
On the negative side, some lenders charge origination fees for these types of loans. And if your credit score isn’t good to excellent, you may not qualify for a low enough interest rate or a high enough loan amount for a debt consolidation loan to make sense. You can use a debt consolidation calculator to crunch the numbers and estimate your potential savings.
Keep in mind that you should only consider consolidating credit card debt if you’re confident you can avoid future overspending. Beginning or continuing a cycle of creating new credit card debt after debt consolidation can lead to bigger financial problems and credit score issues down the road.
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Debt can be overwhelming, and often it can be difficult to know how to begin tackling the problem. But there are solutions. Using the methods above with diligence and consistency can yield debt-crushing results over time and improve your financial health in 2024.
As an expert in personal finance and credit management, I've extensively studied and analyzed the trends and challenges associated with credit card debt in the United States. My knowledge encompasses data from the Federal Reserve, TransUnion, and other reputable sources up to my last update in January 2022. Now, let's delve into the concepts presented in the article:
1. Credit Card Debt Statistics: The article cites Federal Reserve data, indicating that credit card balances in the United States reached a historic high of $1.08 trillion in the third quarter of 2023. TransUnion data from the same period reveals that the average consumer carries a credit card debt of $6,088. These statistics underline the pressing issue of rising credit card debt in the country.
2. Impact of Credit Card Debt: The article discusses the consequences of credit card debt, emphasizing two significant issues. First, credit card debt can be costly due to high-interest rates compared to other financing options. Second, maintaining high credit card balances may negatively impact credit scores, affecting individuals' financial health.
3. Strategies for Managing Credit Card Debt: The article proposes several strategies for dealing with credit card debt in 2024:
a. Debt Avalanche Method:
This method involves prioritizing the repayment of credit card debts from the highest interest rate to the lowest. The article highlights the potential cost-saving benefits and rapid debt elimination with this approach.
b. Debt Snowball Method:
- In contrast, the debt snowball method suggests tackling debts from the lowest balance to the highest. While it may incur slightly more interest, the method offers quicker victories, providing emotional motivation to stick to the repayment plan.
4. Credit Card Payoff Examples: The article includes examples of the debt avalanche and debt snowball methods, illustrating the order in which four hypothetical credit cards with varying interest rates and balances could be paid off.
5. Balance Transfer as a Strategy:
- The article introduces the option of using 0% intro APR balance transfer credit cards to save on interest during the debt payoff process. It emphasizes the need for a good credit score to qualify for the best offers and mentions potential balance transfer fees.
6. Debt Consolidation Loans:
- Another strategy discussed is using debt consolidation loans to combine credit card balances into a single payment. The article notes potential benefits, such as reduced interest rates and monthly payments, but warns of origination fees and the necessity of a good credit score for favorable terms.
7. Cautionary Notes:
- The article provides cautionary notes, advising individuals to avoid consolidating debt if they're not confident about avoiding future overspending. It stresses the importance of responsible financial behavior post-consolidation to prevent further issues.
- The article concludes by emphasizing that while debt can be overwhelming, diligent and consistent application of the mentioned methods can lead to significant debt reduction and improved financial health in 2024. The bottom line is that there are viable solutions for individuals facing credit card debt challenges.