Consumer Alert: Tips for Dealing with Credit Card Debt

ROCHESTER, NY — This consumer alert deals with a dirty four-letter word: debt. The Federal Reserve Bank of St. Louis released a thorough analysis of America’s debt last week that caught our eye.

It says that the average U.S. household with credit card debt has a balance of around $7,226. According to Forbes, the average credit card interest rate this week is 27.65 percent. So at today’s rate, we’re paying more than $165 a month in interest alone. That’s why paying off credit card debt is so important if we want to get financially healthy. Financial experts tell us there are two basic ways to pay off debt.

Let’s look at the snowball method. First, list your debts from smallest to largest. Then, make minimum payments on all credit card debts except the smallest. For the smallest debt, pay as much as you can. Once you’ve paid off the smallest debt, keep the snowball rolling. Transfer that payment to the next credit card debt on your list. Repeat this process until all debts are paid off.

Use the avalanche method to list all your debts. Then make additional payments on the debt with the highest interest rate. Once you’ve paid that off, move to the card with the next highest interest rate. Make additional payments on that and make the minimum payment on everything else. Repeat this process until all credit card debt is paid off.

But Jarrett Felton, financial expert and founder of wealth management firm Invessent, says you may want to consider a third option.

“My thought is whether there is an opportunity to take out a personal loan, because a personal loan is amortized over a period of three, five or seven years, whatever the terms are, and that type of debt is viewed more positively than credit card debt,” Felton said.

So why is amortized debt viewed more positively? This is because the loan is broken down into fixed payments over a period of time until the loan is paid off. Personal loans also tend to have lower interest rates than credit cards.

Click here to see a list of the best personal loans recommended by USA Today.

Click here to see the best personal loans recommended by Forbes.

But here are some of the disadvantages of personal loans. If you have bad credit, interest rates can be just as high as credit cards. Personal loans can also come with high fees and strict requirements.

Whatever method you choose, Felton says you just have to commit to it and you will see results.