Paying Down Credit Card Debt
Decrease Your Credit Card Balance
After facing a year of uncertain challenges, both physically and financially, it is perhaps surprising that consumers managed to pay down a record amount of credit card debt in 2020. However, that doesn’t mean American consumers don’t still have a fair amount of credit card debt.
According to a report from the Federal Reserve, Americans began 2020 with $1.09 trillion in credit card debt – an all-time high. This is a $76.7 billion net increase during 2019, according to a WalletHub study.
But an unprecedented pandemic did not cause the dramatic increase of credit card debt to continue. In fact, a downward trend was almost immediate. A slight paydown of consumer credit card data is normal in the first quarter of any year, according to the WalletHub study. However, in the first quarter of 2020 consumers paid down $60 billion in credit card debt – the biggest paydown ever.
In Q2 and Q3 combined, consumers paid down $58.8 billion more in credit card debt. That’s the first time in more than 30 years that credit card debt has dropped from April through September in the U.S.
It’s not that Americans stopped using credit cards in 2020. However, Americans have begun reducing discretionary spending during the pandemic. They’ve also taken advantage economic stimulus payments and other pandemic-related programs to pay down credit card debt.
Tips to paying down credit card debt
Paying off credit card debt can seem daunting – especially if you’ve amassed quite a bit. But with determination and some solid advice, it’s possible. Here are some tips from Credit.com to get started:
- Get organized – Gather all the information for every card on which you’re carrying a balance. Note the balances, interest rates, due dates and minimum payment for each card. Add up all the minimum payments on each of your credit cards to determine how much you must pay each month just to stay on top of credit card bills.
- Start paying off – Decide how you will pay off your balances with one of these two strategies.
- Consider paying off the card with the highest APR first –Try boosting your payments on the card with the highest APR and paying the minimums on the remaining cards. Once that card is paid off, move on to the card with the next highest APR.
- Or consider paying off the card with the lowest balance first –This may be a method that’s easier to stick to for those who have a difficult time staying motivated without quick gratification. Enjoy the feeling of paying off that lowest balance – then keep paying off from there!
- Create a budget –If you’re not spending within your means, you’ll likely never be able to pay down debt. Create a budget that works for you, leaving wiggle room to pay down that credit card debt.
- Be realistic – It’s important to remember that you still need to spend money on necessities (food, clothes, rent, etc.). So be realistic about how much you can put toward your credit card debt each month.
It may also be helpful to explore other options. These can include strategies such as balance transfers to lower-interest credit cards or using cards with cash back rewards that can be applied to help pay down the balance. A good choice is Skyward Credit Union’s Rewards Mastercard. As the name implies, you can earn rewards with an account that has no annual fees, or balance transfer or cash advance fees, at a competitive interest rate.
Paying off credit card debt may take patience and time. But as you pay down balances, you will soon realize the financial freedom that comes from living a debt-free life with valuable spending and saving habits.