Americans are breaking records when it comes to credit card debt. The Federal Reserve banks say for the first time, credit card debt has exceeded $1 trillion.
For people with credit card debt, tackling the mountain of debt that grows with interest can be overwhelming. First, according to consumer expert Clark Howard of Clark.com, is removing the temptation to use credit cards.
The first step, he said, is freezing your credit cards — and, no, this isn’t like freezing your credit, because when you do it, your cards will be in a bag next to the ice cream and frozen peas.
“I recommend when somebody is what they call a heavy revolver, where you’re always running balances, … you have to put your credit cards literally in the deep freeze,” Howard said.
Once the cards are nowhere you can easily get to them, he said turn to only using cold hard cash.
“I have found over the years that people who have not been able to break their credit card habit, have to go cold turkey and when they go to cash, it is shocking how much less money they spend on month to month and day to day costs,” Howard said.
Howard said while he would normally classify a debit card as “trash” due to its limitations and lack of consumer protections, he said if someone struggling with high credit card debt still needs a card for when cash is not accepted, opt for the debit card.
“Because at the very least, you can’t spend money you don’t have,” Howard said.
Next, you need to focus on a plan to pay down the debt.
“My favorite is you pay minimums toward all your cards that you have, except the one card with the highest interest rate, and throw every available dollar you can towards it,” Howard said.
Howard said following this technique and watching as your balances go down not only relieves pressure for you, but also will motivate you to keep on track.
“It really requires a radical reset on the part of the borrower to attack the problem,” he said.
Howard said balance transfers can be an effective option, but the mistake many make is transferring the balance and then charging back up the old card.
“For that to be a successful strategy, it (transferring a balance) has to be along with not using credit cards anymore,” Howard said.
Howard said one thing to beware of is debt consolidation schemes, as organizations contact you promising to help you eliminate your debt for a price. In many cases, opting in could negatively impact your credit.
Howard said for people who might need more help coming up with an action plan, the National Foundation for Credit Counseling can help.
“It can be as simple as helping you with rethinking how you handle your money every paycheck to negotiating with your creditors for you and coming up with a plan that they can live with, and you can live with so you can get out into debt,” he said.
