For many people, credit card debt is a barrier to their financial security. And while many people believe that financial security means having little or no debt, achieving this goal is usually easier said than done.
For nearly 60% of respondents, being debt-free is the No. 1 factor in feeling financially secure, according to CNBC’s Global Financial Security Survey conducted by SurveyMonkey.
While there are many types of debt, from student loans to mortgages, one of the most expensive forms of debt is credit card debt. This is partly because costly interest charges can quickly cause your credit card debt to rise to an unmanageable level if you carry a balance from month to month.
In fact, the average credit card interest rate has nearly doubled over the past 10 years, from 12.9% in 2013 to 22.8% in 2023, according to the Consumer Financial Protection Bureau. In March, the average APR was around 23%, according to WalletHub.
By the end of 2023, Americans’ collective credit card debt has ballooned to more than $1 trillion, with individuals’ balances averaging $6,501 per Experian.
“People tend to get into credit card debt for practical reasons (emergency and everyday expenses are the two main explanations), but it can be a difficult cycle to break,” said Ted Rossman , senior industry analyst for Bankrate.com. , tells CNBC Make It.
Although getting out of debt is not an easy task, there are strategies that can help. Here are two you might want to consider.
1. Build up your savings
If you have little or no savings, you’re not alone. The majority of Americans wouldn’t be able to cover a $1,000 emergency expense with their savings, according to Bankrate’s 2024 Emergency Savings Report.
One way to prevent unexpected emergencies from causing your credit card balance to balloon is to build a healthy emergency savings fund, Matt Schulz, chief credit analyst at LendingTree, told CNBC Make It .
“If you pay down your card debt to $0 and have no emergency savings, the next unexpected expense, like an emergency trip to the vet or a flat tire, will just have to come back on your credit card and land you in debt again,” he says. “When you have savings, you don’t have to do that.”
Financial experts generally recommend saving enough to cover three to six months of expenses, but it’s not necessary to do it all at once. It’s good to start small and work your way up.
One way to get into the habit of saving is to set a certain amount of money that will be automatically deducted from each paycheck and sent to a separate savings account.
2. Open a balance transfer card
If interest charges are inflating your credit card balance, you may want to try transferring your debt to a so-called balance transfer card.
This type of credit card allows you to move your debt from a high interest rate card to one offering 0% interest for a period of typically up to 21 months. This can be helpful in consolidating your credit card debt and allowing you to reduce your balance over time without having to pay interest charges.
“Used correctly, one of these cards could save you hundreds, if not thousands, of dollars in interest,” Rossman says.
However, you will generally need a good to excellent credit score to qualify for one of these cards. While you don’t necessarily need a perfect credit score, the likelihood of you being approved tends to decrease if your score is below 670, according to Experian.
It’s important to note that opening a balance transfer card or a new credit card in general can temporarily lower your credit score, according to Equifax.
Additionally, be sure to be aware of any payment delays that may result in late fees, as well as balance transfer fees, which are typically between 3% and 5% of the amount you transfer to the new map.
Finally, if your balance transfer card application is approved, it’s important not to impose new fees while you pay off the credit card debt you transferred. Even if you don’t incur interest charges, you’re still adding to your balance, which could make paying it off more difficult in the long run, Rossman says.
“It’s difficult to hit a moving target,” he says. “Divide what you owe by the number of months in your interest-free term and try to stick to that level payment plan.”
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