What to do about credit card debt

Mar 16th, 2022 | By | Category: Personal Finance/Consumers

U.S. consumers have started to again pile up credit card debt, following a record-setting reduction in 2020 that continued into the first quarter of 2021.

During the third quarter of 2021, consumers added $23.6 billion to their tab, following an increase of $44.9 billion in the second quarter. Furthermore, it was expected that consumers would end the year with a net addition of $70 billion in credit card debt, far exceeding the 10-year average of $45.6 billion, according to WalletHub, a financial services website.

Basing its latest study of credit card debt on analysis of data from the Federal Reserve and U.S. Bureau of Labor Statistics, WalletHub reported the average American household’s credit card balance is $8,006. Ways to manage that debt include:

  • Make a budget and stick to It.Know your monthly spending and trim any fat.
  • Build an emergency fund.With a safety net of cash, you won’t be as likely to fall behind on your bills in the event of financial emergencies. Save about a year’s worth of after-tax income.
  • Improve your credit.Better credit can reduce the cost of your debt. You can check your latest credit score for free and get personalized credit-improvement tips on WalletHub.
  • Try the “island” approach. It involves using a collection of credit cards, with each serving a specific purpose. For example, transfer your existing debt to a zero-percent balance card to save on finance charges and get out of debt sooner. And you could use a rewards card or two – perhaps one with travel rewards and one with cash back, or maybe a store credit card – for purchases that you’ll be able to pay off by the end of the month.
  • Repay your most expensive debt first. Put the majority of your monthly debt payment toward the balance with the highest interest rate and make at least the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process until you’re debt-free.
  • Evaluate your job situation.In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to explore whether higher-paying opportunities exist for people with your background or consider acquiring some new skills to make yourself more marketable.

Consumers are again stressing over high credit card debt.