Americans’ total household credit card debt climbed by $50 billion to $1.13 trillion in the fourth quarter of 2023, according to the Federal Reserve Bank of New York. New York Fed researchers told reporters on a call that it looks like things have reverted to a level worse than pre-pandemic, ABC News reported. Researchers noted that higher credit card debt is indicative of strain on many households’ budgets. In a recent blog post, Orman claims you have the power to control the situation. Here are her suggested steps for dealing with credit card debt.
1. Ask For a Lower Interest Rate
When you make payments on a high-APR card, more money goes toward interest than the principal balance. This means it’ll take much longer to pay off your outstanding credit card balance. The credit card issuer may be willing to lower your interest rate if you kept up with payments and have a history of responsible credit use.
Contact your credit card issuer and explain why you want a lower annual percentage rate (APR). The contact number is typically on the back of your credit card. According to a 2023 Lending Tree survey, 76% of credit cardholders who asked for a lower APR within the past year had their request granted. The average decrease was 6.3 percentage points, which could save you $500 or more depending on how much you owe, Lending Tree pointed out.
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2. Review Last Year’s Spending Report for Needs vs. Wants
Many credit card issuers have a year-end summary that categorizes your spending, Orman wrote. She suggests reviewing all the “wants” charged in the summary and cutting back as much as possible on unnecessary purchases.
Rachel Cruze of Ramsey Solutions wrote that 66% of all impulse buys happen in bed on a smartphone, GOBankingRates previously reported. Don’t mindlessly search Amazon when you’re tired and try not to store your credit card information in shopping apps. Even taking the extra step to get up and grab your credit card may discourage you from making the purchase.
You might also want to consider a spending freeze for a month and cut out all non-essential purchases. This will help you see where you’ve been wasting money in the past and avoid adding to your credit card debt.
3. Search for a Balance Transfer Deal
Look online for “best credit card balance transfer deals.” This should give you a list of credit card issuers that offer deals on balance transfer cards to qualified borrowers, Orman wrote. A balance transfer allows you to move a balance over from a high-interest credit card (or several) and not owe interest on that balance for 12 to 18 months. This gives you time to work on paying down your debt without a portion of your payments going toward interest.
The best credit card balance transfer deals typically require a strong credit score, and you may be required to pay a fee – usually around 3% of the total amount. Don’t forget to read the fine print, Orman warned. This is where it says what your interest rate will be after your introductory period expires. According to Orman, it will typically be a range based on your credit score.
4. Increase Your Monthly Debt Payments by $50 or More
Strive to pay more next month than you did this month, Orman wrote. Then, do it again the following month and again. If you start making this a habit, Orman says you’ll be motivated to find ways to increase your payments even more. Don’t look at the balance and focus on limiting your new purchases to needs, not wants.
5. Get a Short-Term Side Gig
If you have the time, consider taking on a side hustle for five to ten hours per week.