Americans Now Owe $1.17 Trillion in Credit Card Debt — Here Are 4 Ways To Break Free
Written by
Laura Bogart
Edited by
Kristen Mae
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You’ve had a bad day, and the only thing that will make it better is treating yourself to dinner and a show. It’s pricey, but you figure, why not? You whip out your credit card and order a steak and a front-row seat. Or maybe, you’ve had a bad couple of months financially, but you don’t want the kiddos to know before the holidays. Out comes the credit card to pay for the hottest toy of the season.
You wouldn’t be alone in these habits. Americans as a whole have racked up $1.17 trillion — yes, that’s trillion with a “T”; no, it’s not a mistake — in credit card debt. According to the Federal Reserve Bank of New York, credit card debt ballooned by $24 billion to reach that staggering total in just one year.
While those numbers seem daunting, it’s important to remember that your debt is a relatively small drop in the bucket. Getting out of debt isn’t easy, but it is possible. Here are some tips to help you get started.
1. Try the Snowball Method
If you’re feeling utterly buried by an avalanche of debt, you can start digging yourself out one snowball at a time. The snowball method, which has been embraced by financial experts like Dave Ramsey, is relatively simple. You make a list of all your debts, from smallest to largest.
From there, you determine how much you need to pay off each debt without accruing more interest. Then, you make a point of throwing any extra money you can at the smallest debt, prioritizing paying it off as fast as you can. Once you’ve cleared that debt, you’ll not only feel a sense of accomplishment — you’ll also have extra money on hand. To do what? You guessed it.
You’ll use the money you would have spent on the debt you’ve just paid off and “snowball” it up to pay off the next debt. And so on, until one glorious day, you’re debt-free.
2. Pay More Than the Minimum
If you want to make a major dent in your debt earlier, you might opt to tackle your high-interest debt first. While you might think that just making the minimum payment on those debts could help you dig out faster, you’d be wrong — paying more than the minimum could reduce the amount of interest you pay in the long run.
Paying your bill quickly — as soon as you get it — can also help you alleviate some of the pain of high interest.
3. Look into Consolidation
Debt consolidation is the fine art of taking out a new loan with more favorable terms, like a lower interest rate or lower monthly payment, and using that loan to pay off your individual debts.
If you’re struggling to juggle multiple payments, opting for debt consolidation can simplify things by reducing your payments to just one a month.
Before you jump in, know that you will still need to repay the loan in full. Your credit score will determine the terms of your consolidation loan, with higher credit scores leading to more favorable terms. You’ll also need to shop around for the best deals.
4. Understand Your Habits
Nobody was born rarin’ to get into debt. Some of the habits that got you into debt might’ve come from your family, or even cultural messages about money and debt. If your early thoughts and memories around money are largely negative, your behavior may follow suit.
It may sound frivolous, but keeping a money diary can help you process your feelings around money and analyze your behaviors — and might prevent you from digging yourself deeper into debt. Working with a financial advisor who is literate in financial trauma or even a trained financial therapist (yes, that’s actually a thing!) can also be helpful.
Remember, there’s no point in shaming yourself. Rolling up your sleeves and getting to work is the best way to get out of debt.
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