It’s not inherently bad to carry some debt. If you own a car or a house or you went to college, chances are you’re paying off a loan.
Mortgages, car loans and college debt are often considered “good” debt. Your residence may grow in value, your vehicle transports you to and from your work, your education adds value to you as an employee or entrepreneur.
These types of debt also typically have low interest rates and good terms. As long as you’re making your payments on time, they will actually improve your credit rating and allow your personal wealth to grow.
But “bad” debt is just a burden — high interest rates, punitive terms and conditions, and no long-term value. Credit card debt is perhaps the most common form of bad debt that people struggle with. It’s well worth figuring out how to lower your credit card debt as soon as you possibly can. Your bank account and stress levels will thank you.
Here are six ways to tackle credit card debt.
1. Tighten your belt
While you’re paying down your debt, don’t continue to add to it by living beyond your means. For a set period of time, build a budget that includes necessities (food, rent, gas) but excludes luxuries (dining out, expensive clothes, theater tickets). You have two aims here: (1) not accumulating additional debt, and (2) ending the month with something left to pay down your existing debt.
2. Pay at least the minimum
Whatever else you do, pay the minimum required balance on every card every single month. This will keep you from piling up fees and penalties. It also puts you in the right mindset. You’re not avoiding the problem. You’re tackling it systematically.
Extra tip! If you’re really in financial straits, make two minimum payments per month. Interest accumulates daily, so making an additional payment halfway through the billing cycle as well as at the end goes a surprisingly long way toward containing your debt.
3. Consolidate your debt
If you have a solid credit score, use it to open a new card, ideally one with a zero-percent annual percentage rate (APR) on balance transfers.
If you can’t manage terms quite that beneficial, consider transferring your balances to your existing account with the lowest APR. (Make sure you factor transfer fees into your moves.) This method can speed your exit from credit card debt because you’re not having to push back on the rising tide of interest.
Even if all you can do is concentrate your debt on two or three cards instead of spreading it out over six or seven, you’ll be making headway against your debt by reducing the number of minimum payments you need to make every month.
4. Negotiate a lower interest rate
Credit card companies would rather you pay them than default, so you might be able to negotiate a lower interest rate that will save you money and allow you to pay off your debt in less time.
5. Pay off the card with the highest APR first
If you can’t consolidate your debt — or not all of it — don’t dig yourself in deeper while you’re trying to climb out. Prioritize paying off the card that is hurting you most.
List all the cards on which you’re currently carrying a balance from highest APR to lowest, and pay off that first card as quickly as possible.
Once you can cross that off your list, work your way down, moving from higher to lower interest rates as you go. This will minimize the amount of interest you have to pay overall.
This is called the debt avalanche approach.
6. Pay off the card with the lowest balance first
The avalanche method of paying off debt will save you the most money in the long run, but if you need short-term accomplishments to keep you focused on paying down debt, consider the snowball method.
In this approach, every month, once you’ve made the minimum payments on every card, you use your remaining funds to pay off the card with the lowest balance first, ignoring the balances on every other card. The sense of satisfaction you’ll gain will keep you going until you’re finally debt-free.
The bottom line
Freeing yourself from bad debt requires discipline and determination. But using these ways to lower your credit card debt can change your life and allow you greater financial and personal freedom.