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There really is a national holiday for everything—including your debt.
March 21 is Credit Card Reduction Day, a holiday dedicated to reducing your credit card debt.
Some people accrue debt through years of overspending. Others begin carrying balances after an unexpected cost arises and they don’t have an emergency fund to cover it. For many, it can be a combination of both.
But while there are many ways to accumulate debt, paying it off comes down to a tried-and-true combination of patience and hard work.
You can begin this Credit Card Reduction Day by taking your first steps towards debt payoff. Here are a few things to consider along the way:
Transfer your balance
One of the easiest, most effective ways to begin paying down your credit card debt is by transferring your balance onto a card with a zero percent introductory interest rate offer. Transferring your outstanding balances helps you to consolidate what you owe onto one card and gives you a period of zero interest to pay off as much as you can.
It’s also a method that isn’t on many cardholders’ radar. According to a recent survey by CreditCards.com, 49 percent of Americans don’t know that balance transfer credit cards exist.
Eliminating interest can save you thousands, but make sure you’re prepared to pay off your balance or at least significantly reduce it, within the introductory period. If you don’t pay it off before the period ends, you’ll be left accruing interest once again.
Consider options like the Discover it® Balance Transfer, which offers zero percent for 18 months and a 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*. After the introductory period, the variable APR ranges from 14.24 percent to 25.24 percent.
The Capital One® Quicksilver® Cash Rewards Credit Card is another great choice, which comes with zero percent for 15 months and a 3 percent fee. Variable interest ranges from 16.24 percent to 26.24 percent after the introductory period.
Once you pay off your transferred balance, these cards can double as rewards cards which you can use to begin developing better credit card habits.
Consolidate with a personal loan
If you’re unable to make a significant dent in your credit card debt over a balance transfer card’s introductory period, which generally ranges between 12 and 21 months, another way to reduce your interest obligation is through a personal loan.
With a personal loan, you can cut the high interest rates on your card balances, which currently average 17.84 percent, to an average of 10.70 percent, according to Federal Reserve data. Current offers may lower your rate to as low as 6 percent.
Whether you consolidate with a balance transfer card or a personal loan, the key is to commit to a debt payoff plan and reduce the amount of interest you pay over time.
If you can pay your balance in full within the introductory period, a balance transfer may be a better option. If you want the flexibility of more time to pay off your debt while still reducing interest, consider a personal loan.
You can use Bankrate’s Debt Consolidation Calculator to help you decide whether consolidation is the right method for you.
Snowball or avalanche
Even if you choose not to consolidate, you still need a debt payoff plan.
Start by contributing as much as you can towards your debt in addition to your minimum monthly payment. If you have multiple outstanding balances, using the snowball or avalanche method can help you choose which debt to tackle first. Here’s the difference:
The snowball method can work for those who are motivated by seeing their balances disappear. Start by figuring out your account totals. While paying the minimum on every balance, funnel all your extra cash toward the smallest balance. When that one is paid off, take that payment and work on the next-highest balance. The effect will snowball your payments and help you minimize debt.
The avalanche method, on the other hand, is best for minimizing your total interest paid. First, determine the interest rates on each account. While you make the minimum payments on all your balances, divert any extra money towards the balance with the highest interest. Once the highest interest is knocked out, move onto the next-highest and so on until your debt is gone.
While using either of these methods, try to make more than one payment per month. For instance, if you’re paid biweekly, or 26 times throughout the year, divide your payments into a corresponding schedule. Even just paying half of your minimum payment each time you’re paid will result in 13 full monthly payments throughout the year instead of 12.
Earn more to pay more
Whether you choose snowball, avalanche, consolidation or any other method, a major key to debt payoff is reducing your interest obligation. You want to pay as much as you can over the shortest period to prevent high interest from accruing
And the most effective way to increase your payments? Increase your income.
First, look for ways to increase your full-time work earnings, whether that means asking for a raise, applying to higher-earning positions or diversifying your skills to find work
You may also consider a side gig. The gig economy has become increasingly popular over the past few years and now it’s easier than ever to earn a second income on a flexible schedule. Try driving for a rideshare service like Uber or Lyft, become a dog walker through apps like Wag or pick up online copywriting or transcription freelance work.
Still, many people already working full-time jobs with long hours may not have the time to take on a second income. But there are more ways to earn a few extra dollars each month that can free up additional monthly payments, like selling your unused items or creating a passive income stream.
If you do increase your paycheck or find a successful side hustle, use that money responsibly. Don’t let it sit in your checking account while you continue minimum payments; devote as much as you can toward your high-interest debt balances.
It’s not the flashiest method, but getting serious about your budget is a great way to free up extra cash and pay down debt more quickly. A well-planned budget can also help you stay out of debt in the long run.
Begin by evaluating recurring monthly expenses. Negotiate your utility bills if you can, find ways to reduce your grocery spending and consider whether you’re actually getting use out of those subscription services.
Next, find ways to cut back on discretionary spending. Many of us could afford to spend less on weekly restaurant and takeout purchases. Look at past statements to find other categories, like clothes, books or travel, that you can reduce while you pay off your debt.
It may even help to undertake a no-spend challenge. See how much you can save by limiting your spending to just the necessities for a week or month, and then divert that cash to your debt payments.
Stay out of debt
Debt payoff isn’t just about paying down balances, but also maintaining a responsible relationship with your credit cards once you’re debt-free. You don’t want to find yourself in the same position a few months or years down the line.
Track your spending and develop a budget that works for you. Continue to look for ways to increase your income. Direct the money you were using to pay off your debt towards building up your emergency fund to cover three to six months’ worth of expenses. Having that cash accessible in a high-yield savings account can help you stay out of debt when you face the inevitable car repair or broken air conditioner.
Establish good financial habits to increase your credit score and only use your credit card for purchases you’re positive you’ll be able to pay once your statement comes.
Start using your credit card to earn money instead of debt, with a cash back or travel rewards card. You can get started with Bankrate’s guide to the Best Credit Cards of 2019.
In the meantime, kick off your Credit Card Reduction Day by checking out Bankrate’s Credit Card Payoff Calculator and Balance Transfer Calculator.