Finance

Credit Card Debt Is at an All-Time High. Here’s How to Fight Back

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The siren song of the credit card is music to our ears lately. When it comes time to pay the bills, we Americans are reaching for the plastic more than ever.

With more people using credit cards to pay for food and rent, Americans’ total credit card debt reached a record $930 billion at the end of 2022, according to a new report from TransUnion. That’s a whopping 18.5% increase from the year before.

(We’ve seen headlines in the past that put Americans’ total credit card debt at $1 trillion, but apparently TransUnion calculates it differently. TransUnion says this is a record. Anyway, credit card debt is way, way up.)

Not only that, but the average credit card balance rose to $5,805, TransUnion says.

This comes at a time when swiping your card has become more expensive than ever because credit card interest rates are rising crazy fast. The average APR on a credit card has climbed above 19% — the highest it’s ever been! It’s the most expensive kind of debt you can have.

What can you do to cut your credit card debt? We’ve got some good ideas for that.

But first…

Maybe Bigger Changes Are Needed

Hey, we’ve all been there with the credit card debt. There’s no shame. We’ve all gone through it.

But if you’re using a credit card to afford groceries and make rent, that’s obviously a problem. That’s not sustainable. It might be time to make some significant changes.

You could:

  • Look for cheaper digs. We know that’s easier said than done.
  • Shop at a cheaper grocery store. When we went looking for the cheapest groceries, we found that Aldi is even cheaper than Walmart. Also, here are our favorite tricks to save money on groceries.
  • Do some meal planning to eat healthy and save money. Here’s our guide on how to start meal planning so that you’ll actually stick to it.
  • Get a side gig. Here’s The Penny Hoarder’s continually updated page on work-from-home jobs.

5 Ways to Eliminate Credit Card Debt

Here’s our ultimate guide to paying off credit card debt. We’ll summarize five methods here:

1. Debt Avalanche

Pay off your credit cards that have the highest interest rates first. Doing that can save you a lot of money over time because you’ll be paying less interest. Learn more about the debt avalanche method here.

2. Debt Snowball

Pay off your credit cards that have the smallest balances first. This allows you to eliminate credit card balances faster, which can motivate you to keep going. Here’s how to use the debt snowball method.

3. The Balance Transfer

If you have good to excellent credit (typically a FICO score of 670 or above) and can feasibly pay off your debt within a year, a balance transfer credit card is a good option. Balance transfer credit cards can save you money on interest charges by letting you transfer the balance of a card with a high interest rate to a card with 0% interest. Most of these cards offer 0% interest for 12 to 18 months with no annual fee.

Pro Tip

Think a balance transfer card is the right move for your finances? We’ve put together a list of the best balance transfer cards currently available.

4. Take Out a Loan

You might look at getting a loan to consolidate and refinance your debts. If you get a loan with a lower interest rate and pay off your credit cards, that lower rate could potentially save you thousands of dollars in interest.

This is a realistic way to pay off credit card debt if you currently have little or no money to put toward it. You could look into getting a personal loan or a home equity loan.

Here’s our step-by-step guide to getting a personal loan. And here’s our guide to home equity loans and home equity lines of credit.

A website called Fiona can match you with a low-interest loan you can use to pay off all your credit card balances.

5. Debt Settlement

The world of debt collections and creditors can be confusing. If you’re being harassed by creditors, don’t give up before finding out your options for assistance.

Debt Management Program: With a debt management program, a credit counseling company will handle your consolidation in hopes of getting you a better interest rate and lower fees. Here’s an article comparing debt management to the strategy of debt consolidation.

Pro Tip

If you owe at least $10,000 in unsecured debt, a company called National Debt Relief will create a customized plan just for you. They’ll negotiate with your creditors to reduce the amount you owe.

Credit Card Debt Settlement: If you’re in more than just a temporary season of financial instability, and you can’t see yourself affording the amount of credit card debt you owe, debt settlement is an option — although we regard it as a last resort before bankruptcy.

Most people seek the help of a debt settlement company to do this. Debt settlement reduces the amount of debt you owe, but it will significantly lower your credit score and negatively impact your credit report.

For more information about these options, check out our ultimate guide to paying off credit card debt.

A final note of caution: Be careful when seeking help with debt settlement. While some companies are legitimately there to assist you, others take your money and do very little to help your situation.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He knows about credit card debt from personal experience.


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