5 Effective Strategies to Eliminate Credit Card Debt

As inflation surged in recent years, nearly half of Americans turned increasingly to credit cards to manage expenses. Despite recent declines in inflation rates, many households continue to rely on these lines of credit.

A survey conducted by consumer website Debt.com among 1,000 U.S. adults reveals that 45% of Americans have ramped up their credit card usage due to inflationary pressures. Inflation peaked at over 9% in June 2022, prompting financial strain on consumers. While the Federal Reserve’s interest rate hikes have helped stabilize inflation, concerns about high prices linger, impacting personal finances significantly.

According to the survey, half of Americans have accrued higher credit card balances due to inflation, with 1 in 5 owing between $10,000 and $20,000 on credit cards alone. Over 35% of respondents report annual percentage rates (APRs) on their credit cards averaging 20% or higher. Additionally, more than a third of respondents admit to maxing out their credit cards in recent years.

Strategies to tackle credit card debt

Debt.com’s survey indicates that 58% of Americans have not explored potential solutions for paying off their debts. Here are five popular strategies that respondents have considered:

1. Debt Settlement: Approximately 10% of respondents have contemplated debt settlement, which involves negotiating with creditors to settle debts for less than the full amount owed. This approach carries risks, including potential damage to credit scores and fees to settlement companies averaging between 15% and 25% of the settled amount.
2. Credit Counseling: About 13% of survey participants have considered credit counseling, which provides education and guidance on managing debt. While initial consultations are often free, ongoing services may incur fees, including federally capped fees for Debt Management Plans (DMPs).
3. DIY Debt Management: Roughly 11% of respondents have looked into managing their debt independently. DIY strategies include creating budgets, cutting expenses, and reviewing credit reports for inaccuracies, offering a cost-effective alternative to professional services.
4. Debt Consolidation Loan: Debt consolidation, favored by 14% of Americans surveyed, involves combining multiple debts into a single loan with potentially lower interest rates. However, this approach may involve origination fees and longer repayment terms.
5. Credit Card Balance Transfer: The most popular option among respondents (19%), balance transfers consolidate debts onto a new credit card with a lower introductory APR, often 0% for a limited period (e.g., 12 to 21 months). This method can provide temporary relief from high-interest debt.

Each of these strategies offers distinct advantages and considerations, depending on individual financial circumstances and goals. By exploring these options and choosing the right approach, individuals can work towards reducing and ultimately eliminating their credit card debt burden.