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a smart way to save
AAA’s savings products and services can help you simplify your finances and be more confident about your money.
Credit card debt can be difficult to tackle, especially when high interest rates make it feel like your balance barely moves. The key is to have a realistic plan for paying down what you owe while avoiding new debt.
Whether you're dealing with one large balance or several smaller ones, these eight strategies can help you figure out the best way to pay off credit cards with bad credit and work toward a healthier financial future.
Start by listing every credit card balance, including the interest rate, minimum payment and due date. Then, look at your monthly budget to determine how much you can realistically put toward your debt. Having a clear picture of what you owe can make the situation feel more manageable and help you set a specific payoff goal.
You'll still want emergency savings, since an unanticipated expense can put you right back into debt if you aren't careful.
The minimum payment is designed to keep your account current, not necessarily to help you pay off debt quickly. When you only pay the minimum, interest adds up because only a fraction of the payment goes toward the principal balance. These tips can help you reduce the balance faster:
AAA’s exclusive webcast series, Well Worth It, is designed to help you master your finances with confidence. From personal finance and budgeting to understanding insurance and planning for the future, this series covers it all.
Watch NowOnce you know how much you can put toward your debt each month, choose a strategy that works for you. Three popular approaches are the Avalanche, Snowball and Snowflake methods:
If you're trying to pay off credit cards, continuing to charge new purchases can make it difficult to make progress.
Review your spending and identify what caused the debt in the first place. You don't have to eliminate everything you enjoy, but temporarily cutting back on things like restaurant meals, subscriptions or impulse purchases can free up money for debt payments.
If you already have a credit card that earns cash back, consider applying those rewards toward your balance. While the amount may be relatively small compared with what you owe, every dollar can help reduce your debt. Just remember that rewards shouldn't be an excuse to spend more or carry a balance, since interest charges can quickly outweigh the value of the cash back.
A balance-transfer card with a promotional 0% APR may give you a period of time to pay down debt without accruing interest at the regular rate. However, these cards typically charge a balance-transfer fee, and the promotional rate eventually expires.
A personal loan may also be an option for consolidating multiple credit card balances. If you can qualify for a lower interest rate, more of each payment could go toward reducing the principal.
Hear expert insight and strategies for taking charge of your debt with Debt Management Strategies, part of AAA’s exclusive Well Worth It webcast series. With a little planning and persistence, paying down debt can be a manageable process.
Watch NowIf you're struggling to make payments, contact your credit card company before you miss a payment. Depending on your circumstances, the issuer may have hardship programs or other options that could temporarily reduce your interest rate or payment.
This can be particularly useful if you have bad credit and don't qualify for some of the lower-interest borrowing options available to consumers with stronger credit.
If you're struggling to keep up with multiple balances, consider speaking with a nonprofit credit counselor. They can help you review your budget and debt, and they may be able to set up a debt management plan.
Be wary of companies that promise to erase your debt or dramatically reduce what you owe. Understand the fees and potential consequences before agreeing to any debt-relief service.
Not a AAA Member? Learn how your membership can help you in all stages of life, on and off the road.
Join Today!Start by listing every credit card balance, including the interest rate, minimum payment and due date. Then review your monthly budget to see how much you can realistically put toward your debt. A clear picture of what you owe makes the situation feel more manageable and helps you set a specific payoff goal.
The minimum payment keeps your account current, but it won't help you pay off debt quickly. When you only pay the minimum, interest adds up because just a fraction goes toward your principal balance. To reduce your balance faster, try paying an extra $25 or $50 a month, putting any windfalls like tax refunds or bonuses toward your debt, and maintaining your spending level when you get a raise so you can apply the extra money to your balance.
Once you know how much you can put toward your debt each month, pick a strategy that suits you. Three popular approaches are:
Continuing to charge new purchases makes it hard to make progress. Review your spending and identify what caused the debt in the first place. You don't have to give up everything you enjoy, but temporarily cutting back on restaurant meals, subscriptions or impulse purchases can free up money for debt payments. If you have a cashback card, you can also apply those rewards toward your balance.
They can be, depending on your situation. A balance-transfer card with a promotional 0% APR gives you time to pay down debt without accruing interest at the regular rate, though these cards usually charge a transfer fee and the promotional rate eventually expires. A personal loan is another option for consolidating multiple balances. If you qualify for a lower interest rate, more of each payment goes toward reducing the principal.
Reach out for help before you miss a payment. Contact your credit card company first, since they may offer hardship programs that temporarily reduce your interest rate or payment. You can also speak with a nonprofit credit counselor, who can review your budget and set up a debt management plan. Be wary of companies that promise to erase your debt or dramatically reduce what you owe, and always understand the fees and consequences before agreeing to any debt-relief service.
a smart way to save
AAA’s savings products and services can help you simplify your finances and be more confident about your money.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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