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According to recent research, approximately 47 percent of Americans have credit card debt. What’s more, up to 40 percent of this population can barely pay more than the minimum amount.
So, exactly how much is the average credit debt? Well, Experian reports that in 2019, the average credit card debt in the US was $6194. This was a spike from 2018 when Consumer Finances’ Survey reported an average household debt of $5700.
What can you do to reduce yours?
1. Pay More than the Minimum
The minimum payment is the lowest amount your creditor will accept to keep the account in good standing each month. This amount varies each billing cycle as it is calculated based upon your current balance and your interest rate. Assume you owe a $2000 average credit card debt accruing 20 percent interest. Your credit card company will let you make a two percent minimum payment, which translates to a $40 monthly amount.
As good as that sounds, it’s to their advantage to let you pay this way — not yours. By only making the least payments, you will end up paying more interest and staying in debt for years.
If you paid an extra $40 alongside your minimum amount, making it an $80 monthly payment- You’d shorten your repayment period by up to six years and reduce some $1727 from the interest amount they’d take.
2. First Cards First; Make Your Payments In Order
Research has it that at least half of the Americans with credit card debt are unaware of all their cards’ interest rates. It is crucial that you understand your credit cards’ annual percentage rate to reduce your repayment period and save more money. This also helps you decide which would be the most advantageous strategy to adopt to pay your cards off.
Debt Snowball-This method involves finding motivation from little accomplishments. The debt snowball has you make minimum payments on all but the account with the lowest balance. You’ll apply every extra dollar you can to the payments on that one until it’s satisfied, then move up to the next lowest one, with the same treatment, and so on, until you’ve covered them all. You’ll clear your debts much faster this way than you would making equal payments on all of your accounts.
Debt Avalanche-The avalanche works the same as the snowball, except you start wit the account carrying the highest interest rate. This approach will save you more money, but it often takes longer to see progress, so most experts recommend the snowball for psychological reasons.
Automated Payments-Setting your bank account to forward payments at specific intervals frees you from the concern of doing so. This also helps you avoid late fees, which will maintain your debts in good standing.
3. Debt Consolidation
You can consolidate your obligations into one account if your credit score is great, but you’re beginning to feel overwhelmed. In so doing, you’ll make a single payment each month.
While there are a number of methods available to accomplish this, here are the two most common.
Consolidation Loans: You can take a personal loan, or tap into the equity in your home to pay off your outstanding credit card debt. Either of these methods will lower the interest rate substantially. However, keep in mind the home equity options put your home at risk of foreclosure if you default on the payments.
Balance Transfers: With a good credit card score; you can transfer your debt balances to a 0 percent credit card. The zero percent introductory rates typically last for twelve to eighteen months, after which the balances will start accruing interest. Credit card companies typically charge a three to five percent fee for this service, depending on the balances in question.
So, while the average credit card debt is high, there are ways to bring it back into line and even pay t off in full. These tips will help you decide the best way to approach chopping your debt down to size.