How to Eliminate Credit Card Debt

U.S. consumers racked up $21.9 billion in credit card debt during the third quarter of 2016, which is the seventh-largest third-quarter accumulation in the last 30 years, according to WalletHub’s 2016 Credit Card Debt Study. We are now on track to finish 2016 with an $80 billion net increase in credit card debt.

Being saddled with credit card is never a good thing, especially when you’re only paying your minimums, hardly touching your principal, and just getting by every month.

In most instances, credit cards feature relatively high interest rates. The current national average interest rate for credit cards is over 15%. Therefore, many financial planning experts recommend paying down and eventually eliminating credit card debt as a core personal financial planning strategy.

A Three-Step Plan to Get Rid of Credit Card Debt

Paying off credit card debt usually requires a certain amount of discipline, as well as a concrete plan. Consider these three steps for getting out of credit card debt:

No New Purchases

Commit yourself to paying cash for all future purchases or using a debit card. If necessary, shred your credit cards.

Set priorities

If you have multiple cards with balances, prioritize. There are two schools of thought here. One is to concentrate on paying off the card with the highest interest rate first, and then move on to the next highest-rate card, etc. The other is to concentrate on the card with the lowest balance first, and then move on to the next lowest balance, etc.

The first strategy will likely result in saving more on interest. However, the second strategy may provide a psychological boost. Paying off a card in full can be very encouraging and can help motivate you to stick with your overall debt reduction plan.

Set Goals and Milestones

Determine to pay off all of your credit card debt by a certain date. Make the goal realistic—the sooner the better, of course, but if your goal isn’t realistic, you may become discouraged if you don’t achieve it.

The Next Step

Once your credit card debt is paid off, consider depositing the money you were putting toward paying off the debt into a savings account, so you can pay for future financial emergencies in cash instead of charging them. Then once you’ve built up an adequate emergency fund, consider investing a portion of the money in a retirement plan.

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