7 ways to pay down credit card debt 1

7 ways to pay down credit card debt

Aneth Ng-Lim

Posted at Aug 22 2023 04:14 PM

Did you know that credit card debt owed by Americans reached a new high of $1.03 trillion in the second quarter of this year? The report came from the Federal Reserve Bank of New York and picked up by CNBC.com.

This trillion-dollar problem is alarming for a number of reasons. First, credit card debt is one of the most expensive ways to borrow money from month to month. This is why users should pay their balance in full when the credit card bills come. Second, the report also showed that more and more cardholders are carrying credit card debt month to month. Sadly, these cardholders could find themselves trapped in a debt hole that is very difficult to crawl out of. Third, owning credit card debt more often than not leads to a bad credit history, which will affect the cost and chances of future borrowings.

Closer to home, the latest available figures show the trend is just as worrisome. Back in May, the Credit Card Association of the Philippines (CCAP) announced credit card debt jumped 47% to P410 billion. CCAP painted a rosier picture saying this is proof of a resilient economy with consumers spending for vacations, online shopping, even car loans. But an economist with a multinational bank explained this could also be a sign that the rising inflation has weakened consumers buying power, giving them little choice but to swipe their credit cards more to be able to make ends meet.

What can compound the problem is that the Bangko Sentral ng Pilipinas (BSP) lifted the 2 percent cap for credit card interest rates it imposed during the pandemic. In January 2023, BSP announced its decision to raise the cap to 3 percent. That 1 percent, added month to month to a growing credit card balance, can hurt already tight household incomes and budgets.

If you also find yourself steadily falling deeper into credit card debt, here are 7 ways you can turn the situation around.

#1 Stop swiping your credit cards

If you already carry a revolving balance, the more you swipe, the bigger your debt hole becomes. As much as you can, stop using your credit cards and look for other ways to pay and cope.

 #2 Tap into savings if possible

If you have savings set aside, consider using it to meet your household needs and even pay down your credit card debt. It’s never a good idea not to have any savings, but this is one of those times where your savings (earning a low interest) can come to your aid (pay off a debt with high interest). 

#3 Settle credit card bills early or on time

When you get your credit card statement, best to pay off the bill then or at least no later than the due date. You will not only save on late fees, but also avoid the risk of skipping a payment because you spent the money for something else.

#4 Pay more than the minimum required

Different cards compute the minimum payment required but it is always a low attractive number making you think you’ll pay just that for now. The more you can pay, the lower the interest fees and the faster you can dig yourself out of the hole.

#5 Ask your credit card company for a payment plan

Most will say no, because payment plans are only offered to delinquent borrowers, or those that have stopped paying their credit cards. But push for it – tell them you are headed in that direction if they don’t help. In the end, they want to be paid so hopefully you will get a payment plan with zero or much lower interest rates than the 3% monthly add-on rate.

#6 No payment plan? Then, transfer your balance

If your credit card company won’t help, consider Balance Transfer offers of other credit card brands. As a rule, balance transfer interest rates are much lower than the 3% monthly add-on rate. Choose the shortest payment schedule you can afford. The sooner you dig yourself out of this debt hole, the better.

#7 Tackle largest to smallest, or even vice versa

More often than not, credit card revolvers owe debt in two or more credit cards, and even personal loans. Set a goal that works for you. You can choose to pay the largest debts first, or the smallest and let that victory carry you forward. You can also prioritize the loans with the highest interest rates as they are costing you more.

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It may feel like the weight of the world is on your shoulders (or wallet), but it is possible to pay down credit card debt. Your best strategy will depend on how much debt you have, your total savings, your financial habits and your spending. What’s important is to realize that change is needed, and to have the discipline to follow through. Getting yourself out of credit card debt will not be easy, but you can choose to start today.


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Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.