Strategies for Paying Off Credit Card Debt
The best way to get rid of credit card debt is to develop a plan and stick to it.
Dear Savvy Senior,
My husband and I, who are retired, have accumulated about $7,000 in credit card debt over the past few years and need some help paying it off. What can you tell us?
—Living Underwater
Dear Living,
I’m sorry to hear about your financial woes but know that you’re not alone. Credit card debt has become a big problem in this country for millions of older Americans. According to a recent AARP report, 52 percent of adults ages 50 to 64 have credit card debt, along with 42 percent of those ages 65 to 74.
Rising costs of basic expenses like food, housing, utilities and health care are the main culprits. But now, new tariffs on products made in China and other foreign countries will make many goods more expensive, which could make this problem worse. Of older adults carrying a balance, nearly half owe $5,000 or more, and nearly a third owe upwards of $10,000.
While paying off credit card debt can feel overwhelming, it’s doable with a solid plan and a bit of belt-tightening and persistence. Here are some strategies to help you tackle it:
Create a Budget
Start by taking a close look at your income and expenses to see where you can free up money to put toward your credit card debt. Also look for areas to reduce spending, such as dining out, entertainment or subscriptions. And see if you’re eligible for any financial assistance programs (see BenefitsCheckUp.org) that can help boost your budget by paying for things like food, utilities, medicine and health care.
Call the Card Company
While the average credit-card interest rate is more than 20 percent, some credit card companies may be willing to lower your interest rate or work out a payment plan, especially if you’re struggling. It doesn’t hurt to ask.
Pay More Than the Minimum
Credit card companies only require the minimum payment, but it’s usually mostly interest. Try to pay more than the minimum every month to make a dent in the principal balance.
Choose a Repayment Strategy
If you have more than one credit card, pick one and get serious about paying it off. Start with the card that carries the highest interest rate, or the one with the smallest balance.
If you focus on paying off the card with the highest interest rate first, you’ll pay less interest over time, saving yourself a lot of money. Once the highest-interest card is paid off, move to the next highest, and so on.
Or you may want to start with the card with the smallest balance. Paying off smaller debts quickly can give you a sense of accomplishment and motivate you to keep going.
Consolidate Your Debt
If you have multiple high-interest cards, look into consolidating your debt with a low-interest personal loan from your bank or credit union. Or consider moving your debts to a balance transfer credit card with 0 percent interest for an introductory period, which is usually 15, 18 or 21 months. This will eliminate the amount of interest you’re paying temporarily. But be careful! Once the introductory promotion ends, the card company will charge interest on any remaining balance.
Consider a Debt Management Plan
If you need more help, use a nonprofit credit counseling agency (see NFCC.org) to create a debt management plan for you. At no cost, a counselor will go over your income and debts and determine what’s workable. The counselor will then negotiate with your lenders, to get a payment plan that will lower your interest and monthly payments and maybe forgive some debt.
If you accept their negotiated offer, you’ll start making one monthly payment to the counseling service, which will in turn pay the issuers. You’ll likely pay the agency a small fee and give up the cards included in the plan, but over time you’ll be able to pay off your debt.
