Further, more than three-quarters of those polled said they won’t pay off their balances in full by the end of January, which means they will also add hefty interest charges to those bills.
Still, many Americans continue to take on ever-increasing amounts of borrowing. About 35% of cardholders are starting 2020 with more credit card debt than they had in the beginning of 2019, according to CompareCards’ latest survey.
And credit cards are — by far — the most popular type of debt, followed by auto loans, mortgages, student loans and medical debt.
“Debt is a major obstacle to reaching financial goals from everything to buying a home to retiring,” said Carrie Schwab-Pomerantz, board chair and president of the Charles Schwab Foundation.
“It affects people of all ages and backgrounds, at different life stages. Borrowing is pretty easy, it’s paying it back that’s hard.”
U.S. households with revolving credit card debt owe nearly $7,000, costing them roughly $1,100 a year in interest payments, according to NerdWallet’s 2019 household debt study.
If you only made the minimum payments on a $7,000 balance, it would take 21 years to pay it off, and you would spend more than $8,900 on interest over that time, NerdWallet found, assuming an interest rate of just over 16%.
At the same time, nearly one in three Americans said paying down debt was their top financial goal for the new year, according to a separate Policygenius survey.
To tackle that type of balance far more effectively, here are some tactics for paying down debt once and for all.
How to pay off debt
Start by figuring out what you owe, then decide whether to use the “debt avalanche” or “debt snowball” method to chip away at those revolving loans.
The avalanche method lists your debts from highest to lowest by interest rate. That way you pay off the debts that rack up the most in interest first.
Alternatively, the snowball method prioritizes your smallest debts first, regardless of interest rate. The idea is that you’ll gain momentum as the debts are paid off and that will motivate you to keep going.
“Having a plan on how you’ll pay off the debt can keep you focused on what it will take to attain ‘financial freedom,'” Schwab-Pomerantz said.
Experts often recommend moving that balance from a high-rate credit card to one with a no-interest or low-interest balance transfer offer to reduce the amount of interest you’re paying.
“Now is a good time to focus on paying off debt because a lot of credit card companies are offering a new year 0% APR on balance transfers,” said Paul Miller, a CPA and managing partner of Miller & Company LLP in Whitestone, New York.
Most offers allow you to pay 0% interest for a year or more. However, if you don’t pay the balance off in full, the remaining amount will have a new annual percentage rate applied to it.
Also, most cards also have a one-time balance transfer fee, which is usually around 3% of the tab — something to watch out for.
- Ask your issuer for a break.
At any time, cardholders burdened with high-interest debt can also reach out to their issuer directly to request a break on interest rates.
“Consumers have a lot more power than they realize,” said Sara Rathner, a credit cards expert at NerdWallet.
In a recent one-year period, more than three quarters of cardholders who asked for a lower rate got it, and most got a reduction of between 5 percentage and 6 percentage points, according to research from CompareCards.com.
Put your credit cards in a drawer, or hide them away if necessary. Then switch to a debit card and pledge to only spend the cash you have on hand, at least temporarily.
“Do whatever you need to so that while you’re focused on paying off your debt, you do what you can to avoid adding to that balance,” said Hanna Horvath, deputy managing editor at Policygenius.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.