How to reduce your credit card debt

If you don’t pay your balance month-to-month, the cost of very high interest rates adds to the damage that inflation is already inflicting on your finances

File image of a man using a credit card in a purchase
File image of a man using a credit card in a purchase.boonchai wedmakawand (Getty Images)

Credit card debt in the United States surpassed $1 trillion at the end of last year. It is the worst time for this line to be crossed because the interest rates paid on these balances are becoming very high. According to Bankrate data, the average interest rate is 20.70%, a record according to the firm’s analyst, Ted Rossman. There is no other debt in the regulated financial system more expensive than this one, and with current inflation, it is like rubbing salt in the wound.

Rossman explains that according to the consumer credit reporting agency Transunion, the average amount of debt per American is $6,360 and the minimum payment to avoid the deterioration of your credit score is 1% of the monthly balance and interest. This analyst’s calculations suggest that with the average balance and minimum payment, a consumer could be in debt for 18 years and pay about $10,000 in interest in that time.

There are five good strategies to reduce or end card debt, and one that should be avoided.

Balance transfer to a card with a 0% rate

These are usually offered as a marketing and promotion strategy by banks and other institutions. Perhaps your own bank will make you an offer on a card you already have, and allow you to pay the balance over a period of time that is usually 21 months. You have to pay a commission to make this transfer, but it is worth it because no interest is added.

You can calculate how much to pay each month until the end of the period and make those payments automatically from your account so as not to miss a beat. Rossman explains that there is data that indicates that half of the balances are not paid when the period ends, at which point the market interest rate resumes, so it is advisable to make a monthly payment plan.

You do not need a great credit score to qualify for this transaction that can save so much money and is the most favored strategy by financial experts, although its effectiveness also depends on the credit limit on the card. It may be insufficient for some debtors.

Two payment strategies: snowball and avalanche

If you have more than one credit card with an outstanding balance, the snowball strategy is to pay off the lowest debt as soon as possible. The idea is to gain momentum, see quick results and be better prepared to deal with the higher amounts. “When you see progress, you gain confidence in your own management,” explains Rossman.

The avalanche technique aims to pay off the most expensive debt first. “It makes more sense from a mathematical point of view, but it takes longer to see progress,” explains the analyst. Choosing one or the other is a matter of personal preference. Maintaining the pace either way is the discipline that’s required, while also not adding more debt.

Consolidation and personal loan

If you have a good credit score — which is possible even when you have debt — you can get a personal loan at 6% or 8% with which to pay off your credit card debt in two to five years. The amount to pay is the same, but the interest rate is significantly lower than what credit card companies are setting. If your credit score is not great, the interest rate will be higher, but at least still lower than the one set by the credit card companies.

Non-profit credit counseling

For someone with a low credit score (less than 650), who has a lot of debt, or who simply needs more help, Rossman suggests turning to non-profit advisors like Money Management International or Green Path. They can be contacted by phone or Zoom and usually have Spanish-speaking staff. These are organizations that offer loans with conditions very similar to the best personal loans available on the market, and they help customers repay the entire debt. Banks work with these services because over time their strategies work and they get their money back.


It is the last-resort option and should be avoided due to the problems it poses for years with credit history, but for some people it is the method that allows them to start again from scratch.

Debt settlement

Bankrate’s Rossman advises against it. Typically, it’s a service offered by for-profit agencies, and the proposal they make sounds better than it is: negotiating an agreement to pay pennies on every dollar owed. “The tactics they use really harm your credit because they advise stopping paying your debts for a time to then propose to the bank an agreement with a strong discount or nothing,” explains the analyst. Not only is your credit score damaged by not paying for a period of time, but also by paying at a discount, if the deal is accepted.

How to distinguish non-profit consultancies from negotiators?

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