Is there an end to credit card debt?

With consumer debt at an all-time high, many Hoosiers are currently grappling with this question. The credit card trap can easily make you feel like there’s no way out, but this is far from the truth. Yes, you can break free! If you have the necessary tools, work hard, and stay committed, you can eliminate credit card debt and live debt-free.

Here are 5 strategies to help you get your credit card debt under control:

1. Assess your debt.

Your first step is to make an honest assessment of all your credit card debt. Check all your credit card accounts. Write down how much you owe and the interest rate you're paying for each one. Take note of the accounts with the highest interest rates. Tally up the total so you have a number to work with and hold onto your list because you’ll need to reference it later. 

Negotiate with the credit card companies.

Next, consider reaching out to the credit card companies behind your open accounts to ask about lowering your interest rate, or even negotiating to have some of your balance knocked off. Be open about your commitment to pay off your debt and any financial challenges you may currently be facing. If you do come to a settlement with a credit card company, make sure to ask for documentation. The agreement is not legitimate unless you have it in writing. 

2. Choose your debt-kicking method.

Once you have your final numbers to work with, you’re ready to choose your path toward a debt-free life. There are two primary methods for paying down debt:

• The avalanche method. Here, you’ll focus on paying down the debt with the highest interest rate first. Once that’s paid off, you’ll move on to the debt with the second-largest interest rate and then continue moving down the list until you are debt-free.

• The snowball method. Using this method, you’ll follow the same premise as the avalanche method, but pay off your debts in order from the smallest amount owed to the largest. In both methods, you gain momentum by putting any surplus funds toward the “focus debt” while making just minimum payments due on the rest.  

Each approach has its pros and cons. The avalanche method will likely be less expensive overall but can take you a while to see tangible results. The snowball method, on the other hand, brings quick results but may cost more in interest paid over the long run. 

Review each method and choose the one that best suits your personality and lifestyle. After reaching a decision, reference the list you made in Step 1 to write down your debts in the payoff order you’ll follow.

3. Maximize your payments.

Now that you have a plan, you need to find the cash to put it into place. As you focus on the debt you’ve chosen to pay off first, you’ll want to maximize your monthly payments toward that debt as much as possible.

To do this, review your monthly budget and look for ways to trim the fat. For example, are you paying for any subscriptions you don’t really need? Are you overpaying for auto insurance?

Don’t be afraid to make drastic changes to your lifestyle as you work on getting rid of your debt. After you've cleared all your debts, restructure your monthly budget to accommodate your newly available income. 

Another way to find extra funds to channel toward your debts is to boost your income. You can do this by requesting a raise at work, looking for a new and better-paying job, or moonlighting on the side for an extra stream of income.

As you work on paying off the first debt on your list, be careful not to neglect the minimum payments on your other debts. Missing just one payment can cost you big in late-payment fees and extra interest down the line. It will also negatively impact your credit score.

4. Consider debt consolidation.

If you have an enormous amount of debt across several high-interest cards, you may want to consider debt consolidation. Calculate on our debt consolidation calculator to see if this strategy would help you.

Transfer debt to a new card.

One way to consolidate your debt is through a balance transfer to a new card with a low-interest or no-interest introductory period. You’ll make more headway on your debt when all of your monthly payment goes toward the debt principal instead of interest. It’s also easier to manage one monthly payment instead of keeping up with several billing cycles.

However, this approach comes with a potential pitfall. Transferring your debt to a new card will likely give you more credit. Only take this route if you are sure you won’t rack up more debt with your newly available credit. It’s also important to remember that once the introductory period ends, your balance will be subject to the card’s regular interest rate, which can be quite high. 

Consolidate with a loan.

Another way to consolidate your debt is through an unsecured personal loan. You’ll use the loan to pay off all your credit card debt, and then you’ll have just the one monthly payment to make toward the loan. You’ll likely enjoy a lower interest rate as well. However, as with a balance transfer, avoid this option if you suspect it’ll land you deeper into debt. 

If you own a home, you can consider consolidating your credit card debt with a HELOC (Home Equity Line of Credit) or home refinance. These types of loans are secured by your home, they typically have lower interest rates than credit cards — a crucial factor in saving money over the long term. Many factors can determine if this solution is best for you. Contact an Everwise Mortgage expert to get our latest rates and to help you figure out if a HELOC or home refinance is a good solution. 

The journey to a debt-free life can take a while to travel, but with a can-do attitude, you can make it happen! Don't be afraid to ask for help. Everwise is here to help you take the first steps toward tackling that credit card debt. Visit us at any of our branches in Indiana and southwest Michigan to speak with an advisor.