Last updated on April 12th, 2023
New data shows that Americans average more than $6,000 in credit card debt. The actual figure, a staggering $6,194, is $154 more than the 2018 average: $6,040. This rise in credit card debt is part of a worrying trend where more and more Americans are relying on their credit cards – something which can have disastrous consequences.
Credit Card Debt: A Growing Problem for Many Americans
According to the Wall Street Journal, the U.S. is currently finding itself buried under a mountain of credit card debt. The Federal Reserve reports that the current debt burden sits at $930 billion. That total is a $46 billion increase over the same period the year prior – and well ahead of debt levels seen before the 2008 recession.
How to Tackle Credit Card Debt
The growing debt crisis makes it imperative that Americans begin to tackle their debts. With an average of over $6,000 per person, however, that task can be daunting. This is especially the case with lower-income households, who often rely heavily on credit. There are two popular methods for paying down credit card debt, the “snowball method” and the “avalanche method.”
Debt Snowball Method
The debt snowball method involves paying off credit card debts from smallest to largest. An individual starts by identifying their lowest credit card balance and paying that one down – all the while making the minimum payments on other accounts. Once the smallest account is paid off, they move to the next lowest account. This trend continues until their entire debt is paid off.
Debt Avalanche Method
The debt avalanche method is like the snowball method but in reverse. Instead of focusing on the smallest existing debt, the individual pays down the biggest debt – all the while making minimum payments on the lower balances. After paying the most significant debt in full, they move to the next largest, and so on.
Related Article: Paying Off Debt – Debt Avalanche vs. Debt Snowball
Both the snowball and avalanche debt methods require adjustments to spending levels. For many Americans, this can be difficult – especially when credit is an essential part of making ends meet. Finding the right balance, however, is critical. Paying down debt requires treating a credit card the same way as cash. This means spending only what can be repaid immediately. It also requires a focus on paying new monthly statements in full – in addition to paying down existing balances. These healthy financial habits, combined with a debt repayment plan, offer the best route out of dire financial straits.
How to Repair Credit After Credit Card Debt
When credit card debt grows, so too does the damage to a person’s credit score. Credit card defaults are commonplace when debts aretoo much to handle, and the effects on scores are catastrophic. When this occurs, rebuilding credit is critical.
Sub-Prime Credit Cards
Recovering from credit card debt with another credit card might sound counterintuitive, but a credit rebuilder credit card is an excellent option for those who want to rebuild their credit report. Credit cards for those with poor credit scores don’t offer the best interest rates, but part of building credit is displaying financial responsibility. Using a card like the Indigo Platinum MasterCard or the Milestone Gold Mastercard requires on-time and in-full payments every month. Fortunately, that isn’t too difficult, as the credit lines with cards like these are far lower than what is found with cards from issuers like Citibank.
Related Article: The Best Unsecured Credit Cards for Poor Credit
Reduce Credit Utilization
Small credit lines offer the chance to reduce dependence on credit cards. This, in turn, can help reduce an individual’s credit utilization. Credit utilization is how much available credit a person uses. If they have a credit line of $1,000, for example, they need to keep spending below $300. A credit utilization rate of 30% or lower is needed to maintain a credit score. For those rebuilding, however, a credit utilization rate of 10% or smaller is essential. This can help quickly counteract the damage of debt – while reducing the reliance on credit cards at the same time.
Responsible Use of Credit is Key
Credit is a tool. While some credit cards offer rewards, points, and perks, these don’t remove the financial responsibility that comes with credit card ownership. Fortunately, there are practical steps Americans can take to get their credit card debts under control quickly.
Related Article: How to Improve Your Credit Utilization Ratio