Before COVID-19 Americans had posted the biggest first-quarter credit card debt paydown ever at $60 billion.
Americans began 2020 owing more than $1 trillion in credit card debt after a $76.7 billion net increase during 2019. Consumers were on pace for one of their best years for paying off credit card debt before the COVID-19 pandemic, according to personal finance website WalletHub.
WalletHub now projects that Americans will take on $140 billion in credit card debt throughout the rest of 2020, ending the year with a net increase of $80 billion.
Here are some tips for managing credit card debt from WalletHub:
- Make a budget and stick to it. It’s difficult to spend within reason or save if you don’t know how your monthly spending compares to your take-home pay, or where that money is going. That is why you should rank your expenses – including debt payments, emergency fund contributions and other savings. Once you develop your budget, make sure to stick to it.
- Build an emergency fund. With a comfortable amount of cash to fall back on, you won’t be as likely to fall behind on your bills in the event of emergency expenses or unemployment. Your goal should be to gradually save about a year’s worth of after-tax income.
- Improve your credit. Improving your credit standing will have a large impact on the cost of your debt. Reducing the cost of your debt will allow you to pay it off faster. Better credit can also make it easier to find a job or a place to live, both of which impact your bottom line.
- Try the island approach. The island approach is a strategy that involves using several different credit cards, with each serving a different purpose. For example, you could transfer your existing debt to a 0 percent balance transfer credit card to save on finance charges, and get out of debt sooner. And you could use a rewards card or two – perhaps one with travel rewards and one with cashback – for purchases that you’ll be able to pay off by the end of the month. This will enable you to get the best possible collection of terms and it will tell you when you’re overspending.
- Repay largest debt first. Most people with serious credit card debt have multiple balances. If that’s the case for you, try the “avalanche method.” That means putting the majority of your monthly debt payment toward the balance with the highest interest rate and making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process until you’re debt-free.
- Evaluate your job situation. In some cases, budgeting and planning won’t be enough to solve your debt problems. You may need to explore whether higher-paying jobs exist for people with your background or consider learning new skills to add to your resume. This may require a bit of time, but it will help you out in the long run.
The full report can be found at wallethub.com/edu/cc/credit-card-debt-study/24400 .