(NewsNation) — Americans have more credit card debt than ever, but knowing where you stand can help you climb out of a hole.
Credit card balances in the U.S. hit a record high $1.21 trillion at the end of last year, according to the Federal Reserve Bank of New York.
A separate report from TransUnion found the average credit card debt per consumer is now $6,580, and more than 173 million people carry a balance.
At the same time, credit card interest rates are near a record high, which means falling behind on payments has never been more expensive.
Understanding your credit card situation can help you turn things around. The size of your outstanding balance, interest rate and monthly payments will help determine which repayment strategy is best for you.
You can use the NewsNation credit card payoff calculator to get control of your debt.
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How can I get out of credit card debt?
There are two popular strategies for paying off credit card debt:
The avalanche method: Pay off debt with the highest interest rate first.
- Make a list of your debts organized by interest rate from highest to lowest
- Pay off your debt with the highest interest rate first, then move on to the debt with the next highest rate, and so on.
- Pros: Reduces the amount of interest you pay over the long run
- Cons: May take longer to completely pay off, since it prioritizes interest rate over size of balances
The snowball method: Pay off your smallest debts first.
- Rank your debts from smallest to largest based on their current balance
- Pay off your smallest debt first, then move on to the next smallest balance and so on.
- Pros: Can be motivating and build confidence to watch debts disappear
- Cons: You pay more interest over the long run by not prioritizing debt with the highest interest rate
There is no one-size-fits-all approach for everyone, and the right debt repayment strategy depends on your unique situation and financial habits.
Other steps you can take if you’ve fallen behind on your credit card payments:
- Ask your card issuer for a lower interest rate: Lenders may reduce your interest rate if they know you’re struggling. Simply call and explain your situation.
- Look into a balance transfer credit card: Balance transfers allow you to move debt from a high-interest credit card to a card with a lower interest rate, usually for a fee.
- Consider nonprofit credit counseling: Credit counselors can help you come up with a plan to repay your debt, oftentimes for free. To check whether a credit counseling agency is legit, make sure they are certified by the National Foundation for Credit Counseling (NFCC).
