Feel like you’re drowning in credit card debt? Here’s how you can get out

If you’re feeling overwhelmed by credit card debt, you’re not alone.

Credit card use has been on the rise. While total household debt balances hit $16.9 trillion at the end of last year, according to a report from the Federal Reserve Bank of New York, credit card balances alone reached a high of $986 billion.

While delinquency rates are relatively low, the Fed reported signs of stress for younger borrowers as they miss some payments.

The average household with revolving credit card debt is $7,486, according to a 2022 study from NerdWallet.

“Stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” Wilbert van der Klaauw, economic research advisor at the New York Fed, said in a release.

These are the questions you should ask yourself to get started paying off your debt.

What are my first steps?

You need to take a look at your financial situation, according to Credit Karma. Make sure you know where your money is going and list out everything you owe, including the interest rate on any debt. From here, you’ll prioritize your spending and create a budget.

It’s important to make more than the minimum payment on your credit card because interest racks up fast.

Make sure you know your budget inside and out. See if there are any categories where you can cut back, then put those funds toward your debt.

Increasing your income doesn’t hurt either.

What’s my payment strategy?

There are several strategies you could use to pay your debt, but not every system works for everyone.

Debt snowball: In this method, you sort your debts by size and pay off the smallest one first, according to NerdWallet. After paying that one off, you’ll roll that payment into the next debt. Over time, your payments will get larger.

For example, if you owe $500 on one card, $1,000 on a second and $3,000 on a third card, you’d start by making minimum payments on the second and third cards and putting as much as you can on the smallest debt. If you were making $100 payments on the first card and paying a $40 minimum on the second, you’d start paying $140 after paying off the first credit card.

Debt avalanche: In this system, you prioritize your debts based on the interest rates instead of the amount owed. This means that you’ll pay less in interest than you would using the snowball method.

Following the above example, if your first card had a 7% interest rate, the second had a 15% interest rate and the third had a 3% interest rate, you’d pay off that $1,000 debt first.

Debt consolidation: Dealing with multiple credit cards can be overwhelming. Consolidating your payments into one account can help simplify your debt. You can get a 0% balance transfer card or a personal loan with a lower interest rate.

How can I get help?

Ask your card issuer if they offer a hardship program or would be willing to negotiate terms. Explain your situation and find out if you can build a modified payment plan that works for you.

If your debt has gone to a debt collector, you should find out more about the debt, according to the Federal Trade Commission. Be cautious about sharing personal information. Collectors are required to tell you how much you owe, the name of the creditor you owe it to, how to get the original creditor’s name, and your next steps if you don’t think it belongs to you.

You can also consider debt management plans, bankruptcy or debt settlement if your case is more extreme. A credit counselor from a credit counseling agency can help too.

This story was originally published March 10, 2023 at 4:04 PM with the headline "Feel like you’re drowning in credit card debt? Here’s how you can get out."