According to cnbc.com, consumer debt has hit a record $16.9 trillion and delinquencies are also on the rise. Consumer debt was up about $1.3 trillion from a year ago across all major categories. And the Federal Reserve Bank of New York reports that credit card balances grew robustly in the fourth quarter.
Credit card debt can be a huge burden, but there are ways to reduce it and save money on interest.
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11 tips to reduce your monthly credit card payments
Credit card payments will quickly increase if you don’t pay off the entire monthly credit card balance. Adding more charges to your credit card account while carrying that balance can send your monthly payment over the top. Here are some tips to help lower those payments.
1. Stop adding to your credit card debt
The first thing you need to do is stop using your credit cards. Each time you make a purchase, you add to your monthly credit card bills, and interest charges compound. The only way cardholders can avoid interest charges is to pay off the balance each payment cycle.
Pro tip: The ideal way to use credit cards is to make purchases to receive the benefits from credit card issuers like points, cash back, and flight bonuses. To get this to work in your favor and avoid interest charges, you must pay your credit card bill in full each month. Using this method, you make your purchases in cash since you pay off the card each month but also receive the perks of using your credit card. You don’t come out ahead if you spend $5,000 to qualify for a $500 sign-up bonus but then spend three years paying off that $5,000.
READ MORE: Are you drowning in debt? Here’s how to save yourself
2. Pay more than the monthly minimum
If you have only been paying the minimum monthly payment, you need to figure out a payment plan that allows you to at least double that payment, if not more. If you look at your credit card statement, it has a section that highlights how long repayment will take if you only make the minimum payment on your credit card. And that’s if you don’t make a single additional purchase during that time. You should only make the minimum payment if you’re beset by a hardship (like losing your job or being hospitalized.) Take stock of your financial situation, then throw all the money you can at your monthly credit card bill. Paying as much as possible will reduce the total interest you pay and you’ll quickly make progress toward a zero balance.
There are two payment strategies to consider:
Debt avalanche method
The debt avalanche method involves paying off all the debt with the highest interest first, then the one with the second highest interest rate, and so on. The strategy works because you pay less interest the more you put toward the principal repayment. It essentially saves you money on interest.
Debt snowball method
This strategy involves paying off the smallest debt first while making payments on the higher amounts before reaching the one with the highest balance. The hope is that you get a sense of achievement by wiping out one debt after another.
To learn more about the differences between debt avalanche and debt snowball, check out this video:
3. Double up on your monthly payment
You can make more than one payment per month if you can afford it or have spare cash at the end of the month. Additional payments will help keep your interest charges down and help you pay off your credit card balances sooner. Making more than one monthly payment works well if you have a side or irregular income and don’t want to hold on to the money for fear of spending it.
4. Make your payments on time
When you make a late payment, not only will you pay extra interest. That late payment will also cost you an average of $39 for the late payment fee. Credit card companies are notorious for adding penalties and late fees even if you paid one day late. Put alerts on your phone calendar of due dates for your cards so you never accidentally miss a payment. Or better yet, sign up for autopay, which will take either the minimum payment, a set total you predetermine or the full statement balance directly from your account by the due date.
Late fees not only add to your credit card balance. They also hurt your credit score because the credit card company reports each late payment to the credit bureaus, and they’ll appear on your credit reports for seven years.
5. Negotiate a lower interest rate
When customers apply for a new credit card, they pay more attention to the overall credit limit than the interest rate charged for day-to-day purchases. If you have been consistent with making your monthly payments, but are looking for ways to cut your monthly spending, try speaking directly with your credit card company. Explain that you have been a cardholder for many years and are looking for a lower rate. Remember that negotiation is a valuable tool to improve your financial situation. It is a skill that takes time and practice but can pay hefty dividends in the long run.
6. Open a balance transfer credit card
If you’re overwhelmed with monthly payments but your credit score is good, apply for a new balance transfer card that offers an introductory rate (or no interest). This will allow you to transfer your high-interest balances from your other credit cards onto the new one. This will help you consolidate your debts into one low-interest account with one monthly payment. Intro balance transfer offers usually include a 0% introductory period of 12 to 18 months. Be aware that most have a balance transfer fee ranging from 3% to 5% for moving balances over to the new card, and many credit card issuers won’t allow you to move debt to a new zero-interest account with the same lender.
You’ll need a relatively good credit score (650 or up) to be considered for one of these cards.
However, if one of your current cards offers you a 0% balance transfer, you can move your other debts onto that card without needing to apply for a new account and your current credit score won’t be a factor.
READ MORE: What is a balance transfer credit card?
7. Apply for a debt consolidation loan
If your credit score is solid, but you want to eliminate multiple debt payments, a debt consolidation loan may be the way to go. This personal loan will allow you to pay off your credit cards and other unsecured debt and leave you with one payment to manage. Speak to your lender, and compare interest rates before taking out the loan. Avoid loans with the highest interest rates; you want the lowest possible interest, so you must pay back the slightest interest.
Pro tip: Don’t forget to crunch the numbers and know the interest rates you pay on your various credit cards and the balances you carry. You will incur some origination fees, so you want to ensure this new loan is cost-effective.
READ MORE: Best debt consolidation loans
8. Try debt settlement or debt resolution
Debt settlement typically involves negotiating with a creditor to pay off a portion of the debt in exchange for the creditor forgiving the remaining balance. Debt settlement will initially hurt your credit score, but you’ll end up paying less than you owe to get out of debt. You can attempt to settle debts on your own, or you can hire a professional debt settlement company.
Debt resolution, on the other hand, is a broader term that can encompass a variety of debt relief strategies. It can refer to debt settlement, but it also includes Debt Management Plans, bankruptcy, or other methods of resolving outstanding debts.
READ MORE: Debt settlement pros and cons
9. Use your home’s equity
A home equity loan or line of credit (HELOC) can be a simple way to consolidate debts into your monthly mortgage payment. Interest rates on mortgages and second mortgages are considerably lower than credit card rates or rates for many personal loans. And it may be easier to qualify since you’re using your home as collateral.
Just be aware that this method puts your home at risk, where you can lose it if you default on your payments.
10. Ask for overtime or start a side hustle
Working even a couple extra hours a week can help you make significant progress in paying down your credit cards.
A side hustle can allow you to pursue a career you are passionate about and earn that extra money to get out of debt faster.
READ MORE: Ways to find cash in a pinch
11. Reduce spending
It goes without saying that the easiest way to pay off your debts is to cut spending. It’s easier said than done, though, particularly as credit card debt in the U.S. is rising. If you’re organized and honest about your needs and wants, even minor budget cuts can significantly improve your financial situation. Try some free budgeting software to get yourself on track.
READ MORE: Best budgeting apps
Should you reduce the number of credit cards you have?
The pros of having fewer credit cards mean less to manage, and closing the accounts simplifies your financial life. There’s less opportunity to get into more debt, saving you more money.
Conversely, closing credit cards can hurt your credit utilization ratio. The wider the gap between what you are using and your credit limits, the better your credit score. As you close a credit card, that card’s limit is eliminated from your credit utilization calculation. You have high balances on some cards, which can result in a higher credit utilization ratio and hurt your credit score.
Ultimately, whether or not you should close some of your credit card accounts comes down to you. Do you have the discipline to keep the cards and not use them? If not, you’ll be better off closing the accounts regardless of the impact on your credit score.
Lowering your balance helps your credit score
Good credit is essential to get the best interest rates on major purchases like mortgages and auto loans. When you reduce your overall balance, which reduces your monthly payments, your credit utilization ratio decreases; when your credit utilization ratio gets below 30% and even more so when you keep the ratio between 1% to 9%, your credit score increases; you can get a copy of your free credit report and check the balances reported to the credit bureaus. After that, you can calculate how much you need to pay off to lower your credit utilization.
READ MORE: How does debt consolidation help your credit score?
Other tips for tackling your debt
- Create a budget
- Meet with a credit counseling agency
- Set goals and put them in writing
- Track your spending
- Set up a support network
The bottom line
Credit card debt does not have to be debilitating. Reducing credit card debt is possible with discipline and planning. Then you can achieve financial freedom and peace of mind.
FAQs
The 15/3 credit card hack is a payment plan that involves making two payments during each billing cycle instead of only one. The goal is to reduce your credit utilization rate and increase your credit score.
Anyone can follow the 15/3 procedure, but it takes some personal management and discipline.
Cardholders must pay attention to the statement date and the payment due date written on each statement. The 15/3 hack gets its name from the 15 and three days that are subtracted from the due date. With this hack, cardholders can lower their credit utilization ratio by the end of their billing cycle, also known as the statement date.
The 15/3 credit hack only makes a difference for people who pay their balance in full each month. Otherwise, it doesn’t make much difference since credit card companies only report ratios to the credit bureaus once per month.
Generally, it is possible. Call your credit card company and ask them to change it. While they aren’t required to do so will do so if you ask.
According to the Federal Reserve’s most recently available data as of July 2022, the average interest rate for U.S. credit cards’ assessed interest is 16.17% on all accounts. So, anything above this is considered a high APR. Banks typically offer credit card APRs from 12% to 24%.
