Is credit card debt weighing you down? If so, you’re not alone. According to a recent study, the average credit card balance in 2023 was $6,501. The same study also indicates the average credit card balance in 2023 varies greatly depending on your generation:
Silent generation (77+) $3,316
Baby boomers (58–76) $6,245
Generation X (42–57) $8,134
Millennials (26–41) $5,649
Generation Z (19–25) $2,854
Regardless of total balances or generation, carrying credit card debt can be a stressor to your mental and financial well-being. Over time, monthly finance charges and potential late fees can end up costing you hundreds, if not thousands of dollars. Those charges take away money that you could allocate to your emergency savings fund, a retirement account, or any other savings goals. That’s why paying your credit cards off is an important step in securing your long-term financial freedom. While the process can feel overwhelming, especially if you have balances on multiple credit cards, following these six simple tips can help you pay them off faster.
- Understand your total credit card debt.
The first thing you need to do is make a list of all your credit cards and their balances, so you clearly understand how much you owe. Your list should include outstanding balances, minimum payments due each month and the interest rates or APR that is charged for each balance. - Create a budget.
Next, create a budget so you know how much money you can put toward paying your credit cards each month. There are many budgeting methods you could use, such as the50/20/30rule orPay Yourself Firstmethod, but in general, your budget should include a list of all income sources (paychecks, side hustles, etc.), how much you need for necessities (groceries, utilities, gas for your car, prescriptions, etc.), minimums due for all debt balances, a set amount to help you build anemergency savings fund, and a discretionary balance to spend on things you enjoy. Any remaining dollars should be put toward paying off your credit cards. If you find that you have little to nothing left after putting money toward necessities, minimum payments, emergency savings, and discretionary spend, you should reevaluate your discretionary spend to see what you can cut back on. - Don’t create more credit card debt.
Whatever you do, don’t create more credit card obligations. Your efforts to pay off existing balances will be negated if you continue to increase other credit card balances. Consider using cash or only what is available in your checking account for all your discretionary spending. If you are tempted to reach for credit cards to pay for things, keep them tucked away in a safe place at home where you won’t have easy access to them. - Determine your debt repayment strategy.
Just as there are many ways to create a budget, there are many ways to pay off your credit cards. What works for one person may not work for another. The important thing is to select a strategy that keeps you focused and motivated by the progress you make.Pay the smallest balance first.
Using this strategy, you make all the minimum monthly payments due on all your debt balances. However, you put any extra money toward the account with the lowest balance until it is paid off. Once it is paid off, redirect all the money that was put toward the lowest balance to the next highest balance (including the minimum payment you were paying on the lowest balance).Repeat this process until all accounts are paid off. This process has been coined the “snowball method” because as you pay off each credit card balance, the payment toward the next balance gets bigger and bigger.Pay the balance with highest interest rate first.
The strategy focuses on paying off the balances on credit cards that are charging the highest interest rate first to help you save money on finance charges. This is especially helpful if your higher interest rate accounts also have higher balances. The same basic concept applies – put all your extra money toward the credit card with the highest interest rate (while also paying minimum payments due on your other balances). Once it’s paid off, shift all those payments to the account with the next highest interest rate until all accounts are paid off. This strategy has been coined the “avalanche method.”
Consider consolidating your balances.
Consolidating all your existing credit card balances into one account with one monthly payment is another good way to pay help pay off your balances quicker, particularly if the consolidated account has a lower interest rate.Consolidating your debt can happen through a variety of financial vehicles including loans or lines of credit from a financial institution, using a low-APR credit card, or even seeking out a debt consolidation service. However, discipline is key. It is important to stay vigilant about not creating new debt while paying off your existing consolidated debt balance. - Make your credit card payments automatic.
Setting up automatic payments to your credit cards will help ensure that you never miss a payment or incur late charges. Not only does this keep your balances in-check, but it could also help improve your credit score. - Take Advantage of Financial Windfalls
Regardless of the repayment strategy you choose, take advantage of any financial windfalls you receive to accelerate your debt repayment process. These include things like bonuses, birthday gifts, tax returns, and inheritances. While it’s tempting to spend these windfalls on something you’ve had your eye on, your future self will thank you when your credit cards are paid off.
No matter how much you owe, planning, combined with a little bit of discipline, will help you get out from under the weight of credit card debt before you know it. Doing so will not only ease your mind, but it will also help secure your future financial well-being. If you have questions about automating your finances or any of your banking needs, a Personal Banker from FNBO would be happy to answer them. Give us a call today.
