It’s a topic that some are rather embarrassed to discuss, but it’s more widespread than many would believe. Here are some tips to help manage credit card debt.
Credit Card Balances
In 2021, the average credit card balance for Indiana residents was just over $5,000. That’s a bit lower than the national average but a bit higher than the previous year. It appears that higher interest rates may be here to stay for a while, so credit card borrowers may not get relief anytime soon.
In his popular book, Diamond of Life: The Five P’s of Success and Significance, Mick Owens cautions readers about credit card debt. “Do not become a slave to your lender,” he warns. “Use discretion.”
Finding a Way Out
If you find yourself in a difficult position with credit card debt, these strategies might help you better manage your situation.²
Consider a Balance-Transfer Credit Card:
Consider transferring debt from a high interest rate card to a balance-transfer card that offers a low or no-interest rate for a period. But a word of caution with this approach: First, some balance-transfer cards may have dollar amount limits, so read the fine print. Second, this strategy requires a high level of financial discipline, and it’s critical that you are committed to reducing your credit card debt and don’t inadvertently add new debt.³
Use a personal loan to consolidate debt:
A personal loan is designed to provide a fixed amount of money over time at a fixed interest rate. But this strategy, too, requires a high level of financial discipline.
Pay off the smallest balance first:
This approach, sometimes referred to as the “snowball method,” may help you feel the most successful in a short period, and success can help lead to a solid debt repayment strategy that you can stick to.
Pay off the highest balance first:
This strategy is sometimes referred to as “the avalanche method of debt repayment.” Targeting high-balance cards first can help you better manage the total credit interest you accrue over time.
When We Get Concerned
When we get concerned about credit card debt is when it prevents people from contributing to retirement plans or when it makes it difficult to stick to a well-structured financial strategy.
Credit cards can be an essential and useful financial tool. But without a disciplined approach, they have the potential to do more harm than good.