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How to Tackle Your Credit Card Debt Problem

While the U.S. economy shrank significantly during the coronavirus pandemic, consumer debt has not risen considerably during the same period. Interestingly, consumer debt has dropped during the pandemic, including credit card debt. Despite this, new research is showing that most American families are still struggling with credit card debt.

Americans Still Holding Significant Credit Card Debt

A new report from LendingTree is highlighting the issues many American families are facing with credit card debt. Over 45% of American families are carrying debt, according to the study, with the average household credit card debt burden in the United States hovering around $6,250.

The study also shows that the higher the household income, the more significant the credit card debt burden. LendingTree’s study shows that higher earners have nearly double the credit card debt burden as the average U.S. family, at about $12,500.

Despite This, Credit Card Debt Shrank in 2020

Credit card debt dropped at one of the fastest rates ever in 2020, with last year also being the first time any form of consumer debt dropped since 2013. Overall credit card debt went from $829 billion in 2019 to $756 billion in 2020, according to Experian.

Interestingly, not all Americans are paying off credit card debt. As reported in September, Americans in New England and the American West are adding debt, on average, while residents of other states paying down debt:

States Paying Off the Most Debt

  • Alaska: $663 average debt repayment
  • Hawaii: $647 average debt repayment
  • Virginia: $565 average debt repayment
  • California: $558 average debt repayment
  • Maryland: $552 average debt repayment
  • Texas: $550 average debt repayment
  • New Jersey: $532 average debt repayment
  • Georgia: $527 average debt repayment
  • Florida: $515 average debt repayment
  • New York: $512 average debt repayment

States Taking On the Most New Debt

  • Vermont: $368 average added to debt load
  • Wyoming: $437 average added to debt load
  • North Dakota: $392 average added to debt load
  • South Dakota: $403 average added to debt load
  • Alaska: $663 average added to debt load
  • Delaware: $489 average added to debt load
  • Montana: $425 average added to debt load
  • Rhode Island: $451 average added to debt load
  • Maine: $396 average added to debt load
  • New Hampshire: $476 average added to debt load

Americans Waiting Anxiously for Another Stimulus Payment

So, what does this data show? Despite the decline in overall debt in 2020, Americans still have plenty to worry about. It also signals that despite some growth in the latter part of 2020, the U.S. economy is still struggling with consumers’ unwillingness to take on new credit card debt.

The worrisome levels of consumer credit card debt also highlight the need for another round of stimulus payments to American families. A new dose of recovery rebate credits and economic impact payments have been predicted for some time now, but political wrangling has delayed any further legislation.

The American Rescue Plan, President Biden’s proposal for economic stimulus, includes a $1.9 trillion relief package and $1,400 direct payments to all eligible Americans. However, what the actual amount will be, and when payments from the federal government will begin, remains to be seen.

How to Pay Off Credit Card Debt

While the future status of a third COVID-19 stimulus payment is uncertain, there are steps Americans can take now to begin paying off credit card debt.

Balance Transfers

Balance transfer credit cards are a great way to refinance existing debt and pay it down at a lower rate. Most balance transfer credit cards come with a 0% introductory APR period on balance transfers. This promotional period lets new cardholders transfer their debt and pay off much – if not all – with no additional interest payments.

Other cards come with exceptionally low APRs and no intro period. The Upgrade Card with Cash Rewards is one such option to consider. The Upgrade Card offers a unique approach to paying off credit card debt quickly. The card is a hybrid – a mix of debt consolidation, personal loan, and a balance transfer credit card.

The Upgrade Card works by extending a credit line of up to $20,000. The card works both as a Visa credit card and a type of personal loan. Cardholders can use their Upgrade account to transfer their credit line to existing accounts, paying them off to create one balance. In this regard, the Upgrade is akin to a debt consolidation product.

Personal Loans

Personal loans are another popular way to pay down credit card debt. Sometimes known as a debt consolidation loan, personal loans typically offer lower interest rates than credit cards and provide a streamlined way to pay off multiple cards and consolidate that debt into one, easy-to-manage monthly payment.

Personal loans come from various lenders, including popular options like Upgrade, Smarter Loans, OppLoans, and Even Financial. However, keep in mind that personal and debt consolidation loans come with a variety of fees not found with credit cards – including loan origination fees.

Paying Off Debt without a New Credit Card

Consumers can also pay off existing credit card debt without taking on a new loan or credit card. While paying down existing debt sounds straightforward, the process requires careful strategizing – especially with the financial unknowns of day-to-day life.

There are two popular methods for paying off debt: the Debt Snowball and Debt Avalanche methods. For both debt avalanche and debt snowball, the approach is the same. The individual makes consistent minimum payments on all their outstanding balances except for one, which will focus on debt. The difference lies in the order in which the obligations are tackled and whether a person wants to focus on balance or interest rate.

Here are how the two methods work:

Debt Snowball

The debt snowball method focuses on paying your debt from the smallest balance to the highest, regardless of the interest rate. The main appeal of the snowball method is that you’ll see progress quickly. Being able to cross off pesky smaller debt amounts one by one can work wonders for your motivation.

debt avalanche method

Debt Avalanche

The debt avalanche method focuses on paying off debt from the largest interest rate to the smallest, regardless of the balance. By targeting the largest interest rate first and putting extra money towards its monthly payment, you’re paying less overall interest throughout the life of that debt.

There is no correct answer when choosing between the snowball or avalanche methods. While avalanche is more mathematically sound and can save more on interest payments over time, it’s not for everyone. It requires commitment and an understanding of the impact made on repayment even when you cannot see any signs. The snowball method is more popular because it feels like you’re getting a series of little victories as you pay off the smaller balances first. This, in turn,  can have a huge impact on your confidence and motivates you to pool together as much extra money as possible to knock out those debts faster. 

Related Article: Paying Off Debt – Debt Avalanche vs Debt Snowball

Featured photo by Olichel / PixaBay

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.