The average consumer has four credit cards and carries a total balance of around $6,000, according to the Federal Reserve Bank of New York’s most recent data. U.S adults have a collective $1.23 trillion in credit card debt.
With so much debt hampering households – and many accruing a balance just to cover everyday needs – taking the first step to pay down your credit card debt is critical. Around one in four people with credit card debt doesn’t have a plan for repaying, according to Academy Bank.
The first step in dealing with credit card debt isn’t a payment but understanding how much debt you have.
Do a credit card inventory
If you’re feeling overwhelmed by your financial situation, looking at credit card balances may feel too intimidating. The best way to get over that fear – and to take the first step toward tackling your debt – is to do an inventory of all card balances.
First, gather the login information for the accounts of credit cards that have balances. If you don’t know which ones do, get a free copy of your credit report. It shows all the open credit cards in your name, including the ones with a balance.
Once you know which cards have balances, log into each account and identify three important things:
- Balance
- Annual percentage rate (APR)
- Monthly payment.
Your balance and next monthly payment should be easy to find, and you can download the most recent statement to find your APR.
List all these out in a spreadsheet or document. Add up the balances to find out what the total credit card debt is.
From here, build a plan to get out of credit card debt. Some experts suggest the “snowball method.” This approach requires cardholders to pay off the smallest credit card balance first. Once the smallest balance is paid off, move on to the next smallest balance.
Pay it down using extra cash and the money that was used for the previous balance. Not only does this technique help get rid of debt, but paying smaller balances off provides a sense of accomplishment and momentum that helps tackle bigger ones.
Another approach is the “avalanche method” – pay off the card with the highest interest rate first. This approach cuts down on the money spent on interest and, as cards are paid off, more money is freed up to pay down other balances.
Fight your fear
Listing out all credit card balances, APRs and monthly payments does something really important for your brain: Naming the fear.
That’s a key step to take for numerous reasons that go beyond your financial well-being, said Dr. Debra Kissen, CEO of Light on Anxiety Treatment Centers.
“When fear is avoided or ignored, it doesn’t disappear – it goes underground and often gets louder,” Kissen said in an email to The Independent. “Emotionally, people tend to experience chronic anxiety, shame, and a sense of being ‘on edge,’ even if they’re not actively thinking about the issue.”
Avoiding your credit card debt can have noticeable physical effects, too.
“Physically, the body often stays in a low-grade stress response: increased muscle tension, disrupted sleep, fatigue, headaches, and difficulty concentrating,” she said.
Not only does naming credit card debt help preserve emotional and physical health, but it also provides a sense of control over the situation, said Maryland-based Licensed Clinical Professional Counselor Carrie Mead. If you can name it, you can tame it.
“It is powerful to name our problem and confront it because it empowers us to take control of our lives. Ignoring is disempowering, while confronting is empowering,” Mead told The Independent in an email. “Looking at our credit card statement, learning how much we owe, and creating a repayment plan actually reduces anxiety because we are taking steps to address the issue.”
Taking that first step to name your credit card debt through an inventory may actually be the toughest step on your journey to paying off your balances. But it opens the door for the next steps you need to take toward financial health, Mead said.
“Taking the first step towards conquering our fears is often the hardest and the one that people most often resist,” she said. “[It] allows us to move to the next step (i.e., reviewing the credit card company’s repayment options or checking my credit rating, or looking for a 0% card where I can transfer my balance) and the next step….Little by little, you’re working toward a solution.”