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Many Americans have credit card debt, but it can be a drag. Read on for tips to get your balance down to $0 in time.
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Inflation began surging in 2021, and it’s been problematic for consumers ever since. It’s therefore not so surprising to learn that between 2019 and 2022, the share of families with credit card debt held pretty steady at around 45%, according to data from the Federal Reserve. After all, it’s hard to shed credit card debt when the cost of everything from groceries to utilities starts to increase.
That said, while the percentage of consumers with credit card debt didn’t change much during that three-year period, balances did shift downward. So that’s good news.
As of 2022, the average U.S. credit card balance was $6,100. The median balance was only $2,700.
When you have a median that’s lower than an average, it’s an indication that more people’s balances are in line with $2,700 than $6,100. It’s likely that that $6,100 figure stems from a smaller percentage of consumers owing a lot of money on their credit cards.
But the reality is that no matter what your credit card balance looks like, it’s best to do what you can to pay it down. The sooner you do, the less money you’ll lose to interest. Here are some options to look at in that regard.
Consolidate your debt so it’s more affordable
You might owe money on a string of credit cards with different interest rates ranging from, say, 16% to 24%. Ouch.
Well, what if you were able to consolidate those debts into a single loan at, say, 8% interest? That’s a considerably lower rate.
If you take out a home equity or personal loan and use it to pay off your credit cards, you can then pay off that single loan over time. Only you’ll be paying a fixed amount every month (whereas your credit card payments might vary as your interest rate adjusts). And you’ll be doing it at a lower interest rate, resulting in some savings and making your debt easier to pay off. Plus, you’ll get a set end date for when your debt will be paid off.
You could also do a balance transfer and move your existing balances over to a single credit card with a low or 0% introductory rate. But those introductory rates don’t tend to last very long. So if you think it’ll take you three years to pay off your credit cards and you’re only eligible for a 0% introductory rate for 12 months, a home equity loan or personal loan may be a better option.
Turn to the gig economy for extra cash
No matter how you consolidate your debt, you’ll need money to pay it off. If your paycheck is mostly eaten up by basic expenses (which is the case for many people today), then you may need to turn to the gig economy for an income boost. You can use your extra earnings to whittle down your debt until it’s gone.
A side gig could also be your ticket to building an emergency fund. And that’s an important thing, because it might prevent you from racking up new credit card debt once your current balances are paid off.
In fact, it’s a good idea to try to sock away enough cash in the bank to cover three months of essential bills. That might seem like a lofty goal, but think about it this way: If you were to lose your job, it might take three months to land a new one. So even if it takes a lot of time to save it up, it’s a good thing to aim for three months’ worth of cash reserves.
No matter how your credit card balance compares to the average consumer’s, you probably want it gone. And these tips could make it possible to be debt-free sooner than expected.
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