Six Tactics for Handling Piles of Credit Card Debt

This article first appeared at U.S. News and World Report Money.

A lot of American families have a lot of credit card debt. The average U.S. household credit card debt is $15,270. That’s almost a third of the annual median household income in the United States.

On top of that, 72% of Americans are living in a paycheck-to-paycheck situation, meaning that if they have an employment disruption or a major expense, they’re going to have to immediately start skipping bills.

These facts point to a very precarious situation for a lot of people out there. If you’ve got a pile of credit card debt and are also living paycheck-to-paycheck, you’re walking a tightrope. Thankfully, there are some simple steps that anyone can take to start digging out of this situation.

Cut up (or freeze) the cards. The first thing you must do is stop relying on credit cards for purchases. At a minimum, you have to be able to cover all of your monthly expenses from your checking account – and to pay down your debt, you’re going to have to do even better than that. The first step is to simply eliminate those cards.

I recommend either cutting them up or freezing them in a block of ice. The ice method is surprisingly easy – fill a pan half-full of water, freeze it, put your cards on top, fill the pan the rest of the way with water, then freeze it again to make an ice cube with your cards. You need to get them out of your hands and out of your wallet so that you don’t continue a pattern of using them.

Delete your card information from online stores. Many people use their credit cards in online stores where their card number is stored. If that describes you, delete your information from those stores as well. If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account.

Create a clear payment plan. Make a list of all of your credit cards, then either order them by interest rate (highest first) or by balance (lowest first). Both plans have positives and negatives – the interest rate plan has the lowest total payoff, but the balance plan is psychologically easier to accomplish.

When you have that plan made, strive to make at least a double payment each month to the top bill on the list and keep making that same payment amount each and every month. When that one is paid off, don’t back down. Take whatever you were paying each month on that card and apply it to the next one. You’ll start steamrolling through the debt.

Take advantage of balance transfers when it makes sense. If you have a high interest card with a balance small enough that you’re confident you can pay it off in a few months, consider transferring it to another card that offers a zero-interest balance transfer. You still need to pay off the debt before the balance transfer expires (or else you’re often hit with a bunch of interest), but if you do it carefully, you can save hundreds on interest this way.

Give yourself an early “boost.” One of the best things you can do when you’re getting started on relieving your credit card debt is to give yourself a quick “boost” in the form of extra money applied to that first credit card balance.

Great, but where do you get that extra money? Clean out your closet. Clean out your DVD collection. Go through any other collections you might have. Evaluate each item and ask yourself whether you’re realistically going to use this item in the next year or so. If the answer is “no,” sell it on Craigslist or eBay. Take all of the proceeds from those sales and make one giant payment to your highest interest credit card – ideally, you’ll pay it off. That burst of success works wonders for motivating you to keep going.

Reset some of your habits. Your daily habits and routines are the reason you got into this mess. Spend some time thinking seriously about how you spend money each day and each week and each month. What routines can you change without impacting your quality of life too much? Perhaps you could eat out less frequently, for example.

A great example from my own life comes from bookstores. I used to be a bookstore-aholic, spending far more than I ever should on books. I simply changed my routine of stopping there a night or two a week, trimming it down to a visit or two a month, and I added in trips to the library to replace it. My entertainment spending dropped drastically.

The steps to fixing your credit card debt are simple. The peace of mind and financial rewards for doing so are tremendous.

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