Credit card balances in the U.S. have reached a 10-year high, according to Nov. 9 data from credit reporting bureau TransUnion. The average credit card account is now carrying a balance of $6,088, according to the agency, up 15% from this time last year.
Total U.S. credit card debt reached a record $1.08 trillion in the third quarter of 2023, according to a separate report this week from the Federal Reserve Bank of New York, highlighting the effects of both inflation and higher interest rates.
The consequences of credit card debt
Using a credit card can be a great way to protect your purchases and earn rewards. But paying off your credit card balance in full each month is critical. Your balance can grow quickly, negating any of the benefits of using the card — the average credit card had an interest rate of 21.19% in the summer of 2023, according to the Federal Reserve, up from 20.68% in the spring.
Carrying a balance can also increase your credit utilization ratio, the amount of credit you have available compared to the amount you're using. This ratio accounts for 30% of your credit score, credit bureau Experian reports.
Those with the highest credit scores tend to have credit utilization ratios in the single digits, according to Experian, while a ratio of 30% or higher can have a "pronounced negative effect" on your score.
How to pay off credit card debt
If you want to chip away at your credit card debt, here are some of the more effective methods to choose from.
Debt snowball or debt avalanche method
The debt snowball method focuses on making minimum payments on all your accounts and putting any extra money toward the card with the lowest balance. You'll then work your way towards tackling the largest balance. The idea is that paying off a balance in full — even if it's a small one — will help motivate you to keep going on your debt repayment journey.
The debt avalanche strategy, meanwhile, tackles the debts with the highest interest rates first, then focuses on smaller balances. This method can help you save by eliminating the highest interest rates first.
For either method to work, you first need to make a list of all of your debts with their interest rates and balances. Then decide which strategy is right for you and determine how much you can put toward paying off your balances each month. Apps like You Need a Budget (YANB) and PocketGuard can help you create a budget right from your phone.
You Need a Budget (YNAB)
Cost
34-day free trial then $109 per year ($9.08 per month) or $14.99 per month (college students who provide proof of enrollment get 12 months free)
Standout features
Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the "zero-based budgeting system" where no dollar is unaccounted for). Every dollar is assigned a "job," whether it's to go toward bills, savings, investments, etc.
Categorizes your expenses
No
Links to accounts
Yes, bank and credit cards
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
Encrypted data, accredited data centers, third-party audits and more
Terms apply.
PocketGuard
Cost
7 day free trial. PocketGuard Premium is $12.99 per month or $74.99 ($6.25/month) annually. Lifetime membership available at a reduced rate.
Standout features
In My Pocket feature uses your income, recurring expenses and savings goals to determine how much you have for everyday spending.
Categorizes your expenses
Yes, but users can customize
Links to accounts
Yes, users can connect accounts through Plaid and Finicity to import data automatically or manually add cash accounts for tracking
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
PocketGuard utilizes bank-level encryption, PINs and biometrics like Touch ID and Face ID
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Debt consolidation
If you feel like you're drowning in debt, a debt consolidation loan might be the solution. It essentially rolls all your balances into one monthly payment, typically with a lower interest rate. (The average 24-month personal loan carried 12.17% interest in the third quarter of 2023, according to Federal Reserve data, compared to 21.19% for credit cards.)
This can make managing payments much simpler and enable you to pay off your debt faster. Not every applicant is approved for a debt consolidation loan, however, and you could face late fees and further damage to your credit score if you miss a payment.
If you think debt consolidation is the right move, CNBC Select recommends Upstart for those with fair or average credit scores, and LightStream for those with good to excellent scores.
Upstart offers personal loans with fixed interest rates, so you avoid any surprises. In addition, it doesn't charge an early payoff fee and allows users to pay creditors directly. It does charge an origination fee of up to 12%, which is deducted from your loan.
We like that Upstart considers factors besides credit score, including education, income and employment history. Co-signers aren't accepted.
LightStream is a good option for those with good credit scores. It offers loans up to $100,000, with same-day funding available. In addition, LightStream doesn't charge origination, early payoff or late fees.
LightStream Personal Loans
Annual Percentage Rate (APR)
7.24% - 24.89%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Balance transfer
Another way to make headway on your debt is a balance transfer to a 0% APR credit card. During the introductory period, which can be as long as 21 months, these cards allow you to pay down your balance without interest. After the 0% APR introductory period ends, you'll be charged the card's normal interest rate on whatever balance remains, so make sure you can pay off your debt before that happens.
There are some important things to consider, however: A missed payment could end the interest-free period prematurely. And, if you fall back into old spending habits, you risk getting even deeper into debt. There is also typically a fee to transfer a balance, usually between 3% and 5%.
If you think a balance transfer card will fast-track your debt payoff, consider a card with no annual fee, a low balance transfer fee and a 0% introductory period that works for your timeline and budget.
CNBC Select has chosen the Wells Fargo Reflect® Card for its no annual fees and long 0% introductory APR period for 21 months from account opening (with 17.74%, 24.24%, or 28.49% variable APR on purchases and qualifying balance transfers after that introductory period ends). Balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
The Wells Fargo Reflect® Card can help you save on interest charges thanks to its extra generous intro-APR offer on purchases and qualifying balance transfers.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply Now to take advantage of this offer and learn more about product features, terms and conditions.
- 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 17.74%, 24.24%, or 28.49% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
- $0 annual fee.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
- Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.
Balance transfer fee
5%, min: $5
Foreign transaction fee
3%
We also recommend the Citi® Diamond Preferred® Card as a top choice for balance transfers, with a generous four-month window from account opening to transfer balances and 21 months with 0% APR on balance transfers from date of account opening (and a regular variable APR between 16.74% - 27.49% after the introductory period ends). There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
The Citi® Diamond Preferred® Card is one of the best balance transfer credit cards and also has a generous intro APR offer.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- 0% Intro APR on balance transfers for 21 months and on purchases for 12 months from date of account opening. After that the variable APR will be 16.74% - 27.49%, based on your creditworthiness. Balance transfers must be completed within 4 months of account opening.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
- No Annual Fee - our low intro rates and all the benefits don't come with a yearly charge.
- Buy now and pay later. Split your payment for eligible purchases of $75 or more into a fixed payment with Citi® Flex Pay.
- Get free access to your FICO® Score online.
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Foreign transaction fee
3%
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Bottom line
With credit card balances at a ten-year high, it's worth looking at how much card debt you're carrying and weighing your options for paying it down. After all, cash back and bonus points don't really mean much if you're deep in the red.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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