Suze Orman: 5 Savvy Strategies for Managing Your Credit Card Debt
Personal finance expert Suze Orman advises that the worst thing you can do when facing credit card debt is to give up.
In the fourth quarter of 2023, Americans’ total household credit card debt increased by $50 billion, reaching $1.13 trillion, according to the Federal Reserve Bank of New York. Researchers from the New York Fed noted that this level of debt is worse than pre-pandemic levels, indicating financial strain on many households.
Orman suggests several steps to manage credit card debt:
1. **Ask for a Lower Interest Rate**
High-interest rates mean more of your payment goes toward interest rather than reducing the principal balance, making it harder to pay off your debt. If you have a good payment history, your credit card issuer might lower your interest rate. Contact them using the number on the back of your card and explain your request. A 2023 Lending Tree survey found that 76% of cardholders who asked for a lower APR got it, with an average reduction of 6.3 percentage points, potentially saving you $500 or more.
2. **Review Last Year’s Spending for Needs vs. Wants**
Many credit card issuers provide a year-end summary categorizing your spending. Orman recommends cutting back on unnecessary purchases. Rachel Cruze from Ramsey Solutions noted that 66% of impulse buys happen in bed on a smartphone. Avoid mindless browsing and storing your credit card information in shopping apps. Consider a spending freeze for a month to identify and eliminate non-essential purchases.
3. **Search for a Balance Transfer Deal**
Look for the best credit card balance transfer deals online. These deals allow you to transfer your balance from a high-interest card to one with no interest for 12 to 18 months, giving you time to pay down your debt without accruing interest. These deals usually require a good credit score and may include a fee, typically around 3% of the total amount. Be sure to read the fine print to understand the interest rate after the introductory period.
4. **Increase Your Monthly Debt Payments by $50 or More**
Aim to pay more each month than you did the previous month. Making this a habit can motivate you to find ways to increase your payments further. Focus on limiting new purchases to necessities.
5. **Get a Short-Term Side Gig**
If you have the time, consider a side hustle for five to ten hours a week to earn extra cash. Dedicate every after-tax dollar from this gig to paying down your credit card debt.