With overall credit card debt on the decline, NY1 looks at some repayment strategies that may help you along the path to a zero balance. NY1's Tara Lynn Wagner filed the following report.
One positive outcome of the financial crisis is that Americans are paying more attention to their credit card debt. While we collectively owe less than a few years ago, many people are still in the red.
"Unfortunately though, over 46 percent of American households still carry a debt of over $15,000," says Alex Matjanec, the co-founder of mybanktracker.com.
Since that balance can spread over a number of cards, you may find yourself making several payments a month. One way to simplify matters is to consider consolidating your debt under one umbrella by taking out a personal loan.
"You are borrowing a set amount of money and you are going to pay it back in even installments over that term," says Greg McBride, a senior financial analyst with bankrate.com. So you know exactly how much your payment will be every month and you know exactly when it will be paid off.
Matjanec says the rates for a 60-month loan are often lower than what you may be paying on your credit cards.
"Personal loans go anywhere from 7 percent to as high as 15 percent on an APR interest rate," Matjanec says.
Want to go even lower? If you're a homeowner, he suggests looking into a Home Equity Line of Credit.
"It is a fixed fee," Matjanec says. "You're able to consolidate and you're able to use your home as equity and the interest rate is probably lower than most. You're in the 3 percent or 4 percent range."
However McBride warns that in the current housing market, not everyone has the equity in their homes to borrow against. Plus, he says there's a trade off.
"You are moving unsecured debt, as in credit cards, to secured debt," he says. "This is debt that is now secured by your home so it's not an obligation you can simply walk away from."
A simpler option may be to transfer your balances to a card with a low promotional rate, ideally 0 percent. There's likely a fee (3 to 4 percent on average) but the overall savings could be substantial.
"If you do owe tens of thousands in debt and you are paying an interest of anywhere from 14 to 20 percent on that, that 4 percent to have zero interest is a huge win for you," Matjanec says."
A good strategy is to calculate what you'll need to pay each month in order to hit zero balance before your 0 percent APR expires and pay that amount every month.
"Consolidating the debt is only the first step," McBride says. "The second and more important step is actually making headway and paying down the debt. Otherwise, all you've done is move the money around."