How to Manage Credit Card Debt

December 21, 2022 Credit Repair
How to Manage Credit Card Debt

Credit card debt just hit a record high. Here's how to trim back your spending

In September 2022, the Federal Reserve Bank of New York reported a record 13% year-over-year increase in credit card debt. Total credit card debt fell just under $890 billion and inflation has wreaked havoc on the economy. As a result, many Americans are struggling to stay afloat. Unfortunately, rising costs in every significant expense category make this feat more challenging than ever.

But it’s not impossible. In fact, with the right strategy, you can avoid getting overwhelmed and incurring debt. Here are four simple ways to trim back spending, avoid credit card debt and improve your financial standing:

Re-evaluate your budget

Inflation is at an all-time high, meaning everything from luxuries to everyday essentials costs more than a year ago. According to the Consumer Price Index, the average American household is spending upwards of 32.9% more in specific categories compared to last year. Translation: It’s time to re-evaluate your budget.

Some expenses are non-negotiable, but others have more wiggle room. You might want to cut back your discretionary spending to compensate for the higher cost of living. Now would be a good time to figure out which streaming services should get the ax and whether to allocate your restaurant spending to your grocery budget.

It’s also an excellent time to review your insurance premiums and shop for a lower quote. Experts recommend shopping for insurance at least once a year to save money. If your home and auto insurance aren’t all bundled yet, you should consider doing so. By re-evaluating your budget, you can figure out where your biggest expenses are and shift your spending to stay out of debt.

Delete apps that make you spend more money

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Mobile apps make life convenient, but sometimes this convenience leads to overspending. With just a few taps, you can pay for virtually anything and not realize how much it adds up until you review your monthly statement. If you want to cut back on unnecessary spending, delete apps from your phone that tempt you to buy things or spend more than you need.

Food delivery apps are notorious spending traps. You think you’re saving money with free delivery and the occasional promotion, but you’re likely overpaying. When comparing the cost of certain foods against their in-store prices, you might find that apps like Instacart charge significantly more. The same goes for restaurant delivery apps like DoorDash, which mark up their prices while offering free delivery.

Not only that, but these apps also take a large chunk of the profits from these orders. If you want to support local businesses and keep your budget on track, delete food delivery apps and commit to either picking up the food or cooking at home. Your wallet and health will be better off for it.

Gaming apps can also take a healthy chunk out of your budget without you realizing it. The longer you play that hard level of Farm Heroes, the more you’ll be tempted to buy gold bars and move along to the next level. The same goes for shopping apps like Amazon and Poshmark. Even if you aren’t getting product notifications prompting you to buy something, the usability of these apps makes it very tempting to purchase things you don’t need. When checkout is smooth and fast, you have less time to rethink a buying decision. Impulse purchases thrive on this design.

Use credit cards for recurring bills only

The easiest way to avoid credit card debt is not to use credit cards at all. But that’s not exactly feasible when credit cards are vital to building your credit history. They’re pretty much unavoidable. A great way to use credit cards without accruing debt is to use them only for recurring bills.

Set your credit cards up to autopay your monthly utility bills, insurance premiums and other recurring expenses. Then use your debit card for everyday expenses. Doing so can help you curb spending while keeping your utilization ratio low.

If you want the best of both worlds, use your credit card to purchase a prepaid or Visa gift card every month. You can use the gift card for everyday purchases without going over budget. This works out especially well if you have a rewards credit card and want to earn points on all your purchases while avoiding the temptation of overspending.

Take advantage of limited-time interest offers

If you regularly pay off your credit cards, you might occasionally receive zero APR offers from your bank. These offers either consist of 0% APR on new purchases or balance transfers, with a 3-5% fee for the latter. You may have noticed an increase in these offers, which are usually delivered via mailers or email.

While these offers can create a debt trap, they can also help you consolidate existing debt. The average credit card interest rate is 16.27%, which can add up significantly. To illustrate this, $10,000 of credit card debt will cost you over $1,600 in interest in a year.

Opting for a $300-$500 balance transfer fee and 6-12 months of interest-free repayment is a much more prudent option. You can get out of debt while avoiding mounting interest fees. The key to exercising this option is to make a plan for paying it off within the required period. Rather than making the minimum payment, commit to an amount that gets you to a zero balance before the interest kicks in.

Bottom line

Credit card debt has long been a problem in the U.S., but it's getting worse between rising inflation and higher interest rates. While cost-cutting can seem overwhelming and even impossible, the best way to tackle this problem is head-on. Starting with a budget evaluation and looking at covert ways you might be overspending is another positive step worth following. It may take a while before things go back to normal, but in the meantime, the steps above can hopefully help you avoid further debt.

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