Couple looking at a bill.

Yes, a credit card is a wonderful financial tool. Using the right one can help you earn points toward travel, merchandise, and cash. But for some, credit cards become a burden. Fact is, the average American owes thousands in credit card debt. The good news is there are ways to reduce and eliminate that debt. All it takes is perseverance, some penny-pinching, and careful financial planning.

Step 1: Limit Your Use

If you owe too much on a single card, stop using it. You can’t pay off your credit card debt if you keep adding to the balance. If you rely on credit cards to make it through your monthly expenses, you might need to take a hard look at your spending habits and start making a budget.

Step 2: Break Out the Calculator

To start tackling debt, you need to know how much debt you have and what your interest rates are. You can find all of that information on your latest statement. Once you have all of your debt information, use our credit card payoff calculator to figure out how much you’ll need to pay each month to pay it off in a set amount of time.

For example, if you have $10,000 on a card with an interest rate of 18%, your monthly payment should be $362 if you want to pay it off in 36 months. We can also help with alternate pay off scenarios that show possible monthly payments broken down by 24-, 36-, 48-, 60-, and 72-month options. Knowing your ideal monthly payment can help you save money in interest and pay off your debt sooner.

Step 3: Choose a Strategy

Now it’s time to build a strategy to break down your debt into more manageable chunks and get it paid off.   

Debt Avalanche Strategy: This method builds momentum just like an avalanche. If you have four credit cards with different interest rates, you would tackle the card with the highest interest rate first. You will continue to make minimum payments on all of your other cards, but any extra savings that you have leftover each month goes straight to the highest interest credit card.

Once you pay off that card, you would start on the next credit card. However, you will take the monthly payment you put toward the first credit card and apply it to the next card to pay it off faster. You will build momentum as more debt is paid off. The only downside is it can take some time before you see any progress, especially on your largest balances. But by using this method, you can save more money in the long term.

Debt Snowball Strategy: The snowball strategy works by organizing your debts by the lowest balance to highest, while ignoring the interest rates on the cards. Just like in the previous strategy, you will continue to make minimum payments on all your cards, but any extra income and payments will go to the credit card with the smallest balance.

The logic behind this strategy is to start with small goals and build to the largest balance so you have a shorter path to first successes. You will end up paying more into interest, but if this method keeps you motivated through paying off all of your debts, then it will be worth it.

Step 4: Take Big Strides

Whatever plan of attack you choose, debt snowball or debt avalanche, there are also other supplemental strategies that can make your snowball or avalanche even more effective.

Balance Transfer: Balance transfers can be a helpful tool to save you time and money on interest while you pay off your debt. At Rivermark, we can help you transfer your credit card balances over to one of our cards, without a balance transfer fee, which are common at other financial institutions.  

Debt Consolidation and Personal Loans: Depending on your total credit card debt, a personal loan can consolidate some or all of your debt into one loan with lower interest rates. We offer personal loans for whatever life throws your way.

Home equity loans and HELOCs: If you’re a homeowner, you may have a lower interest option by taking out a home equity loan or home equity line of credit. A home equity loan gives you a lump sum loan with a fixed interest rate. This option would work best for someone who has a set amount of credit card debt that they want to make more manageable by consolidating the debt and making it easier to pay off with a lower interest rate. An equity line of credit (HELOC) is similar to a credit card, but it has a variable interest rate.

Financial Coaching With Rivermark

As a Rivermark member, you have access to free debt and budget coaching, including help with creating a realistic debt management plan with our certified financial coaches. To talk with a financial coach, call us at 800.452.8502.

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