Welcome to Two Minute Money, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important questions involving your money.
How much credit card debt are you in? The average American household has more than $16,000 in credit card debt. Chances are you’ve got some too. It’s time to take control of your credit card debt in just a few easy steps.
Just do it: Add it up
The first thing you need to do is add up exactly how much debt you’re in. Write down how much you owe on each credit card and its interest rate. It’s scary, but once you face it, debt becomes much easier to manage.
Lowest balance first
If all of your interest rates are about the same, focus on paying the card with the lowest balance first. Paying that one off will motivate you to keep going on the other cards. Make sure you’re still paying at least the minimum on the other cards. Pay even a little more if you can.
Negotiate your rates
Try calling your credit card company and asking for a lower rate. Virtually everything is negotiable with credit card companies. They may say no, but it never hurts to ask. Some credit card companies don’t even make you pick up the phone—you can ask via an online chat. The rate drop won’t be miraculous, but it can save you a few bucks. But remember, if you miss a payment the rate will probably go back up.
Balance transfer
Sometimes, a balance transfer is a good way to manage debt. Yes, that means getting a new credit card and moving your debt onto it, but it actually does work if the new card offers zero percent interest on balance transfers. Just make sure you pay all the debt off before the promotional interest period ends or you’ll end up paying more.
Figure out how many months you can pay zero interest, divide the debt by that number and then set up automatic payments for that amount. You should set up payments for at least the minimum on all your cards. That won’t get you out of debt, but it will help you avoid late fees. Pay more if you can.
Carry cash
After you’ve set up automatic payments, switch to spending in cash. You’ll become more conscious of your spending habits.
Americans owe more than $1 trillion in credit card debt, but that doesn’t have to include you. Following these debt cutting tips and having smart spending habits will put you back in control of your finances.
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