As the country works to overcome the pandemic, credit card usage has increased.
According to the Federal Reserve Bank of New York credit card bills increased $17 billion in the second and third quarters of 2021, according to their data.
This is a lot of coinage that banks and financial institutions owe.
This increased debt is common and dates back to the outbreak of the pandemic in 2020. According to a Bankrate survey, 42% of Americans who have credit card debt increased their balances in the wake of the pandemic. Nearly one fifth of Americans with credit card debt have balances greater than $20,000
Tips to Eliminate Pandemic Credit Card Debt
Understanding the root cause is the first step. How did it get so high? Did the debt result from a misused credit card? It was a one-time purchase of a high-priced item. You can use the card to pay for medical bills.
It takes dedication and acknowledgment to get out of debt. These are some steps that anyone can follow to get rid of heavy credit card debt.
1. Stop using the cards
This is obviously a common-sense approach. You should be able pay your debt down much quicker if you stop adding to it. It would be great if your credit card company reduced its interest rate while you reduce your debt each month.
2. Check Your Budget
Negative cash flow is when you spend more than you earn. Take a look at your spending to determine what is necessary (food, housing and utilities). Then, cut back on what you don’t need (new clothes, eating out every other day, extra streaming channels). Spend any money left over at the end of each month to pay down your credit card debt.
3. Stick to your budget
It’s known as “working your way out” of debt. It requires perseverance and commitment. It is counterproductive to eliminate debt by ordering food processors and watching The Home Shopping Network. A productive way to eliminate debt is to cook every meal at home for a month. Stick to your budget and make good decisions.
4. Talk to a credit counselor
An agency that is not for profit can help you connect with someone who might be able consolidate your credit card debt at lower interest rates. This is called a debt management plan. Your credit card debt is paid at a lower interest rate (the goal is 8%) and you can make monthly payments that are affordable based on your income. This will typically result in the debt being paid off within 3-5 years. This will not only get you out of debt, but it could also improve your credit score.
5. Nonprofit Debt Settlement
Nonprofit debt settlement is a program that’s being offered by a few credit counseling agencies including InCharge Debt Solutions. After you have paid between 50%-60% of your debt, lenders agree to forgive any remaining balance. The debt is paid off in fixed monthly payments over 36 months. Although this could negatively impact your credit score, you will pay less than you owe and the debt will be eliminated within 36 months.
6. The Island Approach is worth considering
This is a clever term to use the credit card system in your favor. You may be eligible for a balance transfer card at 0%. You can use the introductory period, which is usually 12-18 month, to repay your debt at zero interest. You must adhere to the terms of your new card or you will be just rearranging the deck chairs.
7. Pay the most expensive debt first
This is also known as the “avalanche approach”, which means that you pay the largest amount of your money to the highest interest rate balance. Pay off the first card and move on to the second-highest balance card.
8. Assess Your Work Status
Is it possible to add a second job to your income? This “new money” could be used for paying down credit card debt.
9. Filing for bankruptcy
Due to its effect on your credit score and borrowing, bankruptcy is not a viable option. If the debt is too overwhelming and it takes five years to repay, bankruptcy may be your second option.