It is increasingly likely that many Americans will enter retirement with some form of credit card debt. The average credit card debt among U.S. households in 2017 was $6,375, with the average credit card debt of those just entering retirement age at $7,550, according to Experian’s annual study on the state of credit and debt in America in 2017.
While paying down debt can be trickier in retirement due to having a fixed income, it can be made simpler by employing a few strategies.
Steps Toward Paying off Credit Card Debt
The first step is to figure out how much you owe by gathering up all of your credit card information and then check the interest rates affixed to each card balance. While other forms of debt you might have in retirement, such as a mortgage or a car loan,, may have zero percent interest, your credit cards are bound to have higher interest rates. Here you should offer conclusive advice on what to do next.
If you have a budget, figure out how to put aside some money each month toward paying off your credit card debt, putting the highest priority on the credit card with the highest interest. If you do not have a budget, you might find that starting one and keeping up with it is a good way of making a sound financial plan. Since you are on a fixed income, you know how much you are taking in each month from Social Security, pensions and your retirement savings. Next, look at your monthly expenses and set up a monthly budget that can be tracked using a spreadsheet, an app or pen and paper.
Understanding Your Repayment Options
Your primary goal in setting up your monthly budget should be to make sure that you have allocated enough for all your monthly needs. What funds are left over should then be applied to the most effective repayment strategy that suits your needs and personal goals.
You typically have one of two options when considering how to pay down your credit card debt:
- Avalanche method: This method of paying down credit card debt is aimed at paying down the card with the highest interest rate first. This is done by making minimum payments on each card and putting as much as you can afford towards the balance of the credit card with the highest interest rate. Once the debt from that card has been paid off, you can begin to focus on the balance of the card with the next highest interest rate. Continue this strategy until all your credit cards have reached a zero balance.
- Snowball method: This method is the opposite of the avalanche method, meaning that your tactic is to pay off the smallest balance first, then the second-smallest debt, creating momentum (like a snowball) until you have paid off the most significant debt.
Contact a financial expert at CreditGUARD of America at 800-500-6489 today to learn about credit counseling to figure out which credit card repayment strategy is right for you. Our credit counseling program provides a range of effective budget management tools, tips and advice to help you get out of debt.