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With consumers facing higher prices and rising interest rates, it makes sense that credit card debt in the United States has been on the rise in recent months. According to the Federal Reserve, credit card balances reached an all time high in the third quarter of 2023—$1.08 trillion. Meanwhile, the average consumer owes $6,088 according to TransUnion data (Q3 2023).
If you’ve fallen into the habit of revolving a credit card balance from one month to the next, it might comfort you to know that you’re not alone. Yet whether you’re dealing with credit card debt that’s higher or lower than average, it could cause you problems in several ways.
First, credit card debt can cost you money. Average credit card interest rates tend to be higher than other types of financing. So, when you carry balances on your credit cards, the interest charges can add up in a hurry. Furthermore, high credit card balances could also be an issue because they may have a negative impact on your credit scores.
Because of the problems credit card debt can cause, it’s important to take action if you owe more money on credit cards than you can afford to pay off right away. Although there’s no perfect solution for every financial situation, these ideas for getting out of credit card debt in 2024 may help provide some beneficial insights.
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Fastest Ways To Get Out of Credit Card Debt in 2024
There are several different credit card payoff strategies and each has its pros and cons.
The Debt Avalanche Method
With the debt avalanche method, you focus on eliminating your credit card debts from the highest interest rate to the lowest.
To start, you pay as much money as you can toward the account with the highest interest rate. Meanwhile, you make only the minimum payment on the other cards to keep the accounts in good standing.
When you finish paying off the first card on your list, you move on to the card with the next highest interest rate and repeat the process. This process leads to an “avalanche” of debt elimination as you build momentum with each account you pay off.
Below is an example of what the avalanche method payoff order might look like if you were trying to pay off the balances on four different credit cards at once.
Debt Avalanche Example
| Payoff Order | Credit Card Name | Interest Rate | Balance |
|---|---|---|---|
1 | ABC Bank | 24.99% | $2,000 |
2 | XYZ Bank | 22.99% | $3,000 |
3 | QRS Bank | 21.99% | $2,500 |
4 | LMN Bank | 19.99% | $500 |
The debt avalanche may be the best approach if your priorities are saving money and paying off your credit card debt in the fastest way possible.
The Debt Snowball Method
Another popular credit card debt elimination strategy is the debt snowball method. With the debt snowball you attack your debts from the lowest balance to the highest.
You’ll begin the debt snowball payoff method by paying as much money as you can each month toward paying off the entire balance of the first credit card on your list. However, as with the avalanche method, it’s important to maintain minimum payments on your other credit cards to avoid late payments and keep the accounts in good standing.
After you pay off the credit card with the lowest balance, you’ll use the money you were paying toward that account plus the money you used to pay the minimum payment on the next card on your list and combine them. This “snowballs” into a bigger payments that you can use to pay down your next balance more aggressively.
Below is an example of how the debt snowball method might look like if you were trying to pay off the balances of the same four credit cards above at the same time.
Debt Snowball Example
| Payoff Order | Credit Card Name | Interest Rate | Balance |
|---|---|---|---|
1 | LMN Bank | 19.99% | $500 |
2 | ABC Bank | 24.99% | $2,000 |
3 | QRS Bank | 21.99% | $2,500 |
4 | XYZ Bank | 22.99% | $3,000 |
You’ll generally play a bit more interest with the debt snowball method than the debt avalanche. However, the debt snowball usually leads to faster wins which can provide emotional boosts that encourage you to stick with your plan.
0% Intro APR Balance Transfer Cards
No matter how you choose to pay down your credit card debt, high interest rates can slow down your progress. If you have a good credit score, a 0% intro APR balance transfer credit card might be a good option to consider. Taking advantage of a balance transfer offer could help you save money on interest while also making your debt payoff process easier to navigate by combining multiple debts into a single account.
Of course, balance transfers have benefits and drawbacks you should weigh before moving forward as well. Most cards offering balance transfers charge balance transfer fees (often 3%-5% of the total amount you consolidate). It’s important to make sure these fees wouldn’t offset the interest that you would save.
You’ll typically need a good credit score to qualify for the best balance transfer credit card offers. If you currently have limited or damaged credit, you might want to work toward improving your credit score before you apply.
Debt Consolidation Loans
Another possible way to save on interest charges while you’re paying down your credit card debt is with a debt consolidation loan. These personal loans could help you combine your credit card balances into a single payment and potentially reduce your interest rate and monthly payment.
On the negative side, some lenders charge origination fees for these types of loans. And if your credit score isn’t good to excellent, you may not qualify for a low enough interest rate or a high enough loan amount for a debt consolidation loan to make sense. You can use a debt consolidation calculator to crunch the numbers and estimate your potential savings.
Keep in mind that you should only consider consolidating credit card debt if you’re confident you can avoid future overspending. Beginning or continuing a cycle of creating new credit card debt after debt consolidation can lead to bigger financial problems and credit score issues down the road.
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Bottom Line
Debt can be overwhelming, and often it can be difficult to know how to begin tackling the problem. But there are solutions. Using the methods above with diligence and consistency can yield debt-crushing results over time and improve your financial health in 2024.
As a seasoned financial expert with a deep understanding of credit card debt and personal finance, it's imperative to address the alarming rise in credit card balances in the United States, as highlighted by the Federal Reserve's data. The evidence, revealing a record-breaking $1.08 trillion in credit card balances in the third quarter of 2023, is a clear indication of the financial challenges many consumers face. TransUnion's data further emphasizes the gravity of the situation, with the average consumer carrying a debt of $6,088 during the same period.
Understanding the intricacies of credit card debt is crucial, especially given the potential consequences on individuals' financial well-being. One key concern is the cost associated with credit card debt, as the average interest rates tend to be higher compared to other forms of financing. The compounding effect of interest charges can quickly escalate, making it essential for individuals to address their credit card balances promptly.
Moreover, the impact on credit scores adds another layer of complexity to the issue. High credit card balances can negatively affect credit scores, potentially limiting individuals' financial options in the future. In light of these challenges, it becomes evident that proactive measures are necessary for those struggling with credit card debt.
Now, delving into the strategies outlined in the article, two prominent methods for tackling credit card debt are presented: the Debt Avalanche Method and the Debt Snowball Method.
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Debt Avalanche Method: The Debt Avalanche Method involves strategically paying off credit card debts from the highest interest rate to the lowest. By allocating as much money as possible to the highest-interest card while making minimum payments on others, individuals create a cascading effect, akin to an "avalanche" of debt elimination. The approach is financially sound, aiming to minimize overall interest payments and expedite the debt payoff process.
The provided example, with credit cards from different banks and varying interest rates, illustrates the sequential order in which debts are tackled. This method is particularly beneficial for those prioritizing saving money and seeking the fastest possible resolution to their credit card debt.
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Debt Snowball Method: The Debt Snowball Method, on the other hand, prioritizes paying off debts from the lowest balance to the highest. This approach aims to generate quicker wins by eliminating smaller balances first, providing emotional boosts that can motivate individuals to stay committed to their debt repayment plan.
Similar to the Debt Avalanche Method, the article offers an example showcasing the payoff order for four credit cards with different balances and interest rates. While the Debt Snowball Method may result in slightly higher overall interest payments compared to the Debt Avalanche, the psychological benefits of achieving smaller victories sooner can be a powerful motivator.
Additionally, the article introduces alternative strategies to expedite debt repayment:
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0% Intro APR Balance Transfer Cards: For those with good credit, leveraging a 0% intro APR balance transfer credit card can be an effective way to save on interest while consolidating multiple debts into a single account. However, it's crucial to weigh the associated balance transfer fees and ensure they won't offset the interest savings.
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Debt Consolidation Loans: Another option to reduce interest charges is through debt consolidation loans. These personal loans enable individuals to combine credit card balances into a single payment, potentially securing a lower interest rate and monthly payment. However, factors such as origination fees and credit score requirements should be carefully considered.
In conclusion, the expert-backed advice provided in the article empowers individuals to make informed decisions tailored to their financial situations. Whether opting for strategic debt repayment methods or exploring balance transfer cards and consolidation loans, the key is to approach credit card debt with diligence and consistency, thereby achieving debt-crushing results and improving financial health in 2024.
