Millions of Americans are buried in high-interest debt. This is the most dangerous type of debt. Largely associated with credit cards — which sport interest rates averaging 21.51% as of the second quarter of 2024, according to research from LendingTree — high-interest debt accumulates quickly if you don’t pay it off in full every month.
Carrying high credit card debt has several negative effects; it can damage your credit score and cost you wealth-building opportunities, to name just a couple of dreadful consequences. If you’re ensnared in high-interest debt, you may feel stuck. How do you dig yourself out of it?
GOBankingRates spoke with financial experts to learn the five most effective ways to eliminate high-interest debt .
Your first step in eliminating high-interest debt is to create a realistic budget. Though this move in itself doesn’t make a dent in debt, it gives you a full-picture view of your financial behavior and positioning, so that you can figure out which expenses to nix.
“Paying down high-interest debt could be as simple as cutting out nonessential expenses and putting more money each month toward paying off the debt,” said Jared Macarin, personal finance editor at MarketWatch Guides .
Applying for a 0% APR balance transfer credit card could be a good strategy to pay down high-interest debt. But these offers don’t last forever. Macarin noted that you need to feel confident that you can pay down all the debt during the 0% interest promotional period. You should also know that there is some cost to transfer.
“There are some associated fees with transferring balances, but all the funds in your monthly payments go toward the principal amount with no interest,” Macarin said.
Get a Debt Consolidation Loan With a Lower Interest Rate
If you have numerous debts, it could make sense to get a debt consolidation loan, which essentially puts all your debt in one place.
“If you have multiple debts, a debt consolidation loan could be appropriate and help simplify monthly payments, especially if you have a high credit score,” Macarin said. “That way you only have one payment as opposed to many, and with a lower interest rate.”
Try the Debt Snowball Method or Debt Avalanche Method
There are a couple of very helpful strategies you can implement to tackle high-interest debt. Consider the debt snowball method or the debt avalanche method, both of which are championed by financial experts.
“With the debt snowball method, you pay the minimum on all debts, but you put extra money toward the lowest debt balance,” Macarin said. “Then you work your way up to the highest debt and gain momentum as each debt is repaid.
“The debt avalanche method is based on the interest rate,” Macarin said. “After you pay the minimum, you put more toward the highest-interest debt and so forth. Either method can be effective and you should choose whichever works best for you to stay motivated.”
Negotiate Your Interest Rate With Credit Card Lenders
When you see that cumbersome credit card bill in the mail, you may think there’s simply no way to get around it. To some extent that is true, but there could be some wiggle room if you take the time to talk with your credit card lender.
“Some lenders are willing to negotiate with you to cut back on interest rates,” said Scott Lieberman, founder of Touchdown Money . “You might get a more favorable payment schedule, a better interest rate or another tool that makes it easier to manage your budget. It never hurts to ask.”
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