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How to manage any credit card debt you may have racked up the last few months

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Credit card debt is even more of a problem during the pandemic than usual.

Almost two-thirds of Americans with credit card debt are worried about being able to make minimum payments in the next three months if the crisis continues, according to a CreditCards.com poll.

The good news is that some are already taking steps to address their card balances, according to personal finance site NerdWallet, which surveyed how people are managing debt during Covid-19. One strategy: Ask your lenders about lower interest rates.

"Often a bank would be able to permanently lower your interest rate by a least a few percentage points," said Lauren Anastasio, a certified financial planner at San Francisco-based personal finance company SoFi. "If they aren't able to do that permanently, they may be in the position to offer you something much lower for at least a few months."

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Recently Anastasio worked with a SoFi member who was able to negotiate a 0% rate on her existing balance for six months.

Lenders and service providers alike are in the position to provide you with ongoing payment modification options, Anastasio said. A skipped payment can be a temporary help, but be sure to ask the companies you work with what else is available to improve your cash flow moving forward. 

Getting a more favorable rate isn't a given, says Sara Rathner, credit cards expert at NerdWallet in Richmond, Virginia. "A history of on-time payments can help give you leverage in your negotiations," she said.

"Just keep in mind that the credit card company may do a hard credit inquiry to see if they're willing to grant you the lower interest rate," Rathner said. "That can temporarily lower your credit score by a few points."

Then there are hardship programs. These are usually actual payment plans, coupled with lower fees and/or interest rates, that you negotiate with the bank that issued your credit card, according to NerdWallet.

Be forewarned that asking to enter such a program should be a last resort, because it can have negative consequences. "While they can help you stay afloat in the short term, you may have to deal with terms that are tough to swallow, such as freezing or closing your credit card," said Rathner. 

Hardship programs are available through major card issuers such American Express, Bank of America, Capital One and U.S. Bank, according to NerdWallet. 

Snowball or avalanche

What's the best way to pay down debt? The answer depends on whom you ask.

Money expert Dave Ramsey likes the snowball method. You look at all your debts and pick the one with the smallest balance. Forget about the interest rate and the type of debt. Just choose the smallest amount and throw all your resources at paying that down. You do still have to keep up minimum payments on your other accounts, of course.

The theory is that aggressively attacking the smallest amount will allow you to see some immediate results, which then kicks motivation into high gear.

People become attracted to strategies like the snowball because it offers greater short-term gratification.
Douglas Boneparth
president of Bone Fide Wealth

There's some support for this. The one-debt-at-a-time strategy works better than making equal payments across several accounts, and concentrating on the smallest debt works best, according to research published in the Harvard Business Review in 2016.

But it's undeniable that you'll be incurring more interest charges.

Douglas Boneparth, a CFP and president of Bone Fide Wealth in New York, gives the snowball a thumbs-down. "I personally think it assumes people are too weak or too stupid to choose the approach that, at the end of the day, puts the most amount of money in their pocket," he said.

In the avalanche method you rank your debts by interest rate, highest to lowest. Dedicate any extra resources possible to the balance that has the highest interest. All other balances get the minimum payment. When the highest one is paid off, start paying off the next highest.

Try a blizzard

Karl Tapales | Moment | Getty Images

As a financial advisor, Boneparth is well acquainted with how psychology influences money choices. "People become attracted to strategies like the snowball because it offers greater short-term gratification," he said. Some people will never care that it doesn't make as much sense financially.

Boneparth points out another snow-themed strategy — the blizzard — that combines the snowball and the avalanche.

Put your debts in size order. Give yourself a burst of motivation with one snowball debt clearing. Then, switch to the avalanche to attack your remaining balances.

Or try Boneparth's own hybrid method: Calculate how much you'd save in interest if you used the avalanche method with a snowball vs. avalanche calculator. Mentally take half that amount and earmark it for a reward for yourself. Come up with a regular reminder to inspire you to keep attacking your debt, Boneparth says.

Make it personal

When it comes to paying down debt, you should "do you." Pick the strategy that's most appealing, because it's likely the one you'll stick with.

Come to a thorough understanding of how much comes in every month versus how much goes out, Anastasio says. In the best case, you have a bit of a surplus. "That tells someone how much extra they can pay toward the debt every month," Anastasio said.

Another advantage in switching to cash: People who use cash spend less than people who use credit.

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The age old debate: cash or credit?

Keep a hard-copy reminder of your debt progress on your nightstand, your fridge, your desk — wherever you'll see it every day. As soon as one debt is done, cross it off and move on to your next, Anastasio says.

Tell your family and friends you are paying down debt. "It's a way to get some support and reduce temptations," Anastasio said. "You may find someone else is doing the same thing.

"Voila, now you have a budget buddy."

Set up recurring payments to the card you're throwing the most money at. "Many folks like the idea of set it and forget it," Anastasio said. It removes temptation and makes it harder to use the money for something else.

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