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How to get rid of $5,000 of credit card debt

Here are four strategies you can use to crawl out of credit card debt. (iStock)

America has a big problem with credit card debt.

The average U.S. consumer owes $6,194 in credit card debt, up from $6,040 in 2018, according to a recent study by credit reporting bureau Experian. Overall, consumer credit card debt in the nation has hit a record high of $829 billion.

Alaska is the state with the highest average credit card balance per person at $8,026, as of Q2 2019, Experian said. New Jersey was next, with $7,084, followed by Connecticut at $7,082.

Unfortunately, many people may have to take on additional credit card debt in the coming months to make ends meet if they’ve been laid off, furloughed, or had their income reduced, with COVID-19 continuing to take its toll on the economy.

So, if you’re already carrying a credit card balance from month to month — and burning money on interest payments — now is the time to pay it off.

Here are four ways to wipe out $5,000 of credit card debt — and stay out of debt going forward.

1. Open a balance transfer card

The average credit card interest rate is 19.02 percent for new offers and 15.10 percent for existing accounts, according to WalletHub research. If you’re carrying high-interest credit card debt, moving it to a balance transfer credit card that offers a low or zero percent introductory rate can help you save money in interest payments while you pay off the debt. (One caveat, though: most balance transfer credit cards charge an upfront balance transfer fee of typically 3 percent to 5 percent of the transfer amount.)

Don’t know where to start? You can shop and compare balance transfer cards through Credible.

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2. Take out a personal loan

Using a personal loan to consolidate and pay off credit card debt is a good option if you can find one that has a lower interest rate than your current credit card. Paying a lower interest rate will enable you to pay off more of your debt principal each month, which would help you eliminate the debt faster than if you kept it on a high-interest credit card. But be mindful: the average interest rate on a new two-year personal loan from a commercial bank in the U.S. was 10.36 percent as of May 2019, according to the Federal Reserve.

Need help finding a low-interest personal loan? You can shop and compare offers on Credible.

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3. Find some hidden cash

We’re not talking about looking for money under a mattress. We’re talking about using free mobile apps, like Ibotta, that give you cash back when you go shopping, and websites like Rakuten (previously eBates.com), which gives you cash back at more than 2,500 online stores with rebates of up to 40%.

Also, consider searching for unclaimed property in your state at Unclaimed.org, a website endorsed by the National Association of Unclaimed Property Administrators. If you come up with a match, you’ll receive information on how to file a claim.

4. Create a budget — and stick to it

Reining in your spending is one of the best ways to free up cash that you can then put towards paying off credit card debt. Indeed, in a Debt.com survey from earlier this year, 97 percent of respondents said “everyone” should budget — yet only 80 percent of them had one themselves.

To clamp down on discretionary expenses, you’ll need to set a budget for your household. You’ll want to take advantage of free budgeting tools like Mint.com or BudgetTracker.com, which enable you to track your spending across all of your financial accounts.

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Mint provides a rainbow-colored pie chart with slices for gas, utilities, shopping, and other spending categories, allowing you to see exactly where are dollars going in a typical month. Once you have that information, you can identify areas where you can cut back. Every little of bit savings counts (read: if you’re splashing out $10 a month on a Spotify Premium membership, reverting to the service’s free subscription, with advertisements, will save you $120 a year).

Avoid credit card debt in the future

Once you’re out of credit card debt, your mission is to stay out. Here are some simple tactics you can implement to avoid accruing credit card debt going forward:

Ask for a lower credit limit. Although lowering your credit utilization ratio can hurt your credit score, reducing the limit on your credit cards can help you prevent spending beyond your means.

Find an accountability partner. Schedule monthly check-ins with a reliable friend or family member who can help you monitor your credit card spending.

Set up automatic payments. Most credit card companies allow you set up automatic bill payment, which will ensure that your card’s balance gets paid in full every billing cycle.