Putting yourself in a good financial life should be your top priority. One of the best ways to achieve that goal is to reduce credit card balances. People normally put their every expense on credit cards, thus the balance adds up. You might also be doing the same thing, and running up high-interest credit card debts.
So, it is the right time to search for a solution to this problem. You must form a plan to reduce credit card debt and eventually eliminate the balances.
But, before going deep into the discussion, let’s check out some figures to understand where we are standing right now!
As per the federal reserve, the total outstanding U.S. consumer debt is $3.9 trillion. The national revolving debt has also reached the $1.027 trillion mark in March 2018.
The median debt per American household should be $2,300, but the recent data received from “Survey of Consumer Finances”(U.S. Census Bureau and the Federal Reserve) shows that the mean credit card debt of U.S. households is approximately $5,700.
The Federal Reserve for Outstanding Revolving Debt has provided a report on average credit card debt as of April 2018; that is:
|Average credit card debt/usage|
|$5,839||Per U.S. adult|
|$4,087||Per U.S. resident adults|
|$1,734||Per account of U.S. adults’ with credit report and SSN|
|9,333||Per household paying entire balances every month|
|$1,154||Per card that doesn’t carry a balance|
|$1,841||Per store card average balance|
|$5,422||Per cardholder, excluding unused and stored cards|
|$6,354||Average balance on credit cards
(it was $6,188 in 2016 (2.7% lower)*
*Data as per Experian’s annual study on the state of credit and debt in America
The average credit card debt, per borrower, also has been rising in recent years to $5,472 in the first quarter of 2018, according to TransUnion statistics.
Can you believe it? More than 41.2% of all households carry some sort of credit card debt!
If you analyze the stats, it’ll be clear to you that credit card debt is slowly damaging our financial life. If you also have a huge credit card balance in your account, it is high time to do something about it. You need to create a payoff plan and get rid of the credit card dues asap.
But you might have a confusion about how to lower your credit card balances easily.
Well, you might need to follow some steps to get the job done. Let’s discuss it below.
1. Know the debt figures
If you want to reduce credit card debt, you should know the actual debt amount.
Let’s say you have signed up for a debt management plan and enrolled with a total debt amount of $5,000. But in reality, your debt amount might be $8,000 or more.
|So, before you sign up for a program, you must write down your card details, your total due balances, and interest rates for each card you have.|
2. Try not to roll over credit card balances
Each card has its minimum payment limit depending on the due balance. Many credit card holders use this facility to avoid paying the balance in full. This is something you shouldn’t consider as a solution. Instead, you must always try to make the full payment before every due date.
|Rolling over your outstanding balances for the next billing cycle will cost you a lot. Because when you roll over the balance to the next billing date, it’ll generate monthly interest on the balance.|
If you continuously make the minimum payment and keep rolling over the due balance, with adding up new purchases, your payable interest will be huge and your debt amount will increase month by month.
3. Avoid using your cards
Now you know that your new purchases will add up and may increase your credit card debt every month. So, to manage that spending, you should refrain from using the cards for a while. This is a temporary solution.
If your interest rate is too high, you definitely need to control your credit card usage.
|Until you figure out a debt repayment plan, you need to avoid adding up the new balance to the credit cards.|
4. Negotiate with your credit card companies
|If your interest rate is too high, call your credit card company and negotiate for a lower interest rate.|
Many credit cardholders don’t know that this is possible. It is easier for you to lower your credit card interest rates if you have a good credit score.
To build a good credit score, you need to pay your dues responsibly and regularly. If you follow this method, it’ll make you a good client. Credit card companies won’t be interested to lose a good client, so they may offer you a lower interest to keep the account live.
5. Track your regular expenses and create a budget
Note down the costs. You may have multiple committed expenses like utility bills, mortgages, car payments, insurance premiums, phone bills, monthly minimum credit card payments, cable bills, etc. Take a piece of paper and note down all these expenses.
Apart from them, you should add variable costs too, like the cost of dinner at a restaurant, movie tickets at the weekend, and of course travel costs. This is how you can utilize your budgeting skills.
|Reviewing your recurring costs is the foundation of good budgeting. You may also analyze your past year’s credit card bills and bank statements. This is how you can get a clear idea of your monthly spending.|
Next, you should sort out a few ways to reduce your expenses. You may save a good amount by downgrading your cable plan or phone connection. You can also reduce eating outs at restaurants, and other entertainment expenses like movie premieres, cocktail parties, etc. You may also reduce your gas expenses by using a bus or cab while going to work.
6. Limit usage and avoid cash withdrawals
If you really need to use your credit cards, try not to use more than 50% of your total card limits. To monitor your limits, you can use mobile alerts or email messages as a notification. If your credit usage is too high and you are irregular on your bill payments, it may affect your credit score.
|Interest will be charged on your credit card if you use it to withdraw cash.|
Every credit card has its own cash withdrawal limit. When you withdraw cash from your credit card, a one-time fee and interest are charged on the amount. So, the more you withdraw, the more you have to pay as interest.
7. Provide standing instructions to the bank for auto payment
Give your bank standing instructions for making auto payments to your credit card bills.
This way, your full outstanding balance will be paid each month. As a result, no credit balances will be rolled over to the next month and you’ll gradually lower credit card balances.
8. Transfer your credit card balances
It is a temporary but alternate way to get rid of your high-interest credit card debt.
|You may transfer your high-interest credit card balances to another low-interest credit card.|
This option is useful if you can find a credit card that offers a 0% or a relatively low introductory rate than your existing cards. The offer usually lasts for a few months.
At the end of the introductory period, the interest rate will become high. So make sure you repay the balance within that period.
9. Pay off your credit card balance with the highest APR
Using a credit card will be a lot simpler if you know how to lower credit card balances each month. So, to make it simple, you should check out all of your credit card balances and associated interest rates.
Whichever credit card has the highest annual percentage rate (APR), pick that one and try to pay it off first.
You should also make minimum payments on your other cards.
Once you pay off the highest APR card, you can shift your focus to another credit card with the second-highest APR.
Continue with this process and gradually you’ll reduce credit card balances very soon.
10. Pay off credit cards starting with the lowest balance
In this method, you need to select the credit card with the lowest balance. Add all of your extra income or savings towards paying off that credit card. As soon as you pay off the card, choose the next one with the lowest balance. If you continue to make payments like this, soon all of your credit card balances will be paid off. Remember, you need to make minimum payments to your other cards too.
11. Consolidate your credit card debts
If you want a simple solution for your ever-growing credit card balances, you should try out a good debt repayment strategy like credit card consolidation. Through this strategy, you can reduce your credit card debts by taking out a debt consolidation loan.
By using that money, you can pay all the credit card balances. Now you just need to make one monthly payment for the loan. You can even start an automated payment system so that you don’t forget the payment due date anymore.
All of your credit cards are paid off now. Now follow a good budget plan and pay off the debt consolidation loan on time. Don’t miss a single monthly installment, ever.
Attractive discounts, lucrative deals, and big offers can entice you to use your credit cards as much as possible. But don’t forget, as much you use your credit cards and increase credit card balances, it’ll harm your finances in the near future. So, note down your credit card usage, lower your expenses, and use cash instead of credit cards.